Court Opinion

ID: 9465368
Source: CourtListenerOpinion
Date Created: 2023-08-05 00:44:42.009963+00
Date Added: 2024-06-11T17:39:08.939704
License: Public Domain

GIBSON, Chief Judge,
dissenting.
I agree with the majority opinion in holding that the United States should follow the general provisions of the Uniform Commercial Code,1 and that the “commercially reasonable” provision of the Code could not be waived. However, in my view the United States has complied with the requirement of U.C.C. § 9-504(3) that “every aspect of the disposition (of collateral), including the method, manner, time, place and terms” be reasonable. The contrary finding of the District Court.is clearly erroneous.
The test of whether a disposition of collateral is reasonable requires an examination of the entire factual situation. C. I. T. Corporation v. Lee Pontiac, Inc., 513 F.2d 207, 210 (9th Cir. 1975); In re Zsa Zsa Limited, 352 F.Supp. 665, 670 (S.D.N.Y. 1972) , aff’d mem., 475 F.2d 1393 (2d Cir. 1973) . We are primarily concerned with the procedures employed by the secured party rather than the proceeds obtained. In re Zsa Zsa Limited, supra, 352 F.Supp. at 671; U.C.C. § 9-507(2). The secured party need only act reasonably; it is not an insurer of a hypothetical expected return. In re Zsa Zsa Limited, supra, 352 F.Supp. at 672.
Turning to the present case, it is apparent from the guarantors’ brief and the majority opinion that only three aspects of the sale are challenged as unreasonable. First, it is contended that insufficient advertising preceded the sale. Second, it is argued that an expert in printing equipment should have been hired to assist the auctioneer. Finally, the guarantors complain that the sale shouldn’t have been conducted on a Tuesday. They attempt to show that these failing were unreasonable by claiming a scarcity of bidders and low prices.
The majority makes much of the shortness of the period between the selection of an auctioneer and the auction. They fail to recognize that during this time the auctioneer sent letters to the printers most likely to be interested in the property. Over 600 handbills were distributed and advertisements appeared in two leading newspapers in North Dakota. In short, considerably more advertising was done in this case than in most sales of distressed goods. It is also clear that the advertising reached many interested persons.
*956It is also impossible to view the failure to hire expert assistance for the auctioneer as unreasonable. The defendants concede that Mr. Berg, who called the sale, is a competent North Dakota auctioneer. While he may have misnamed some of the printing equipment, it is obvious that the machinery was present and potential bidders were aware of how it operated and what function it served. The only certain result from hiring an expert to assist Mr. Berg would have been greater expenses to be deducted from the sale proceeds.
Finally, the guarantors complain that the sale should not have been conducted on Tuesday because small weekly newspapers in North Dakota distribute their papers on Wednesday or Thursday. If the sale had been held on Wednesday, the same argument would have been advanced. The simple fact is that some complaint could be raised as to any day of the week. They have not shown that any local custom prohibited Tuesday sales.
The contention that the auction should have been on a different day is related to the claim that likely buyers did not attend the sale. The majority notes that one hundred eighteen persons registered as bidders; however, the majority fails to recognize that in a typical sale of foreclosed property one hundred sixteen fewer would have attended. Eighteen of the approximately one hundred publishers and job printers in North Dakota were represented at the auction. In my view, that number far exceeds the minimum to be expected at a reasonably run auction of distressed goods.
I believe the majority and the District Court also erred in analyzing the evidence of the prices paid for goods at the sale. It is difficult to comprehend how the disparity between the price received at the auction and the estimated value of the goods can show unreasonableness when the majority concludes that there was no evidentiary basis for the District Court’s damage findings, except in the case of the Fairchild Press. Putting aside that incongruity, the majority’s recitation of the value evidence reveals the weakness of the evidence. Ante, at 951-952. There was evidence of the trade-in value of the Fairchild Press; however, it is common knowledge that trade-in values are almost always inflated. The cost of various machines when purchased years earlier was considered by the District Court despite the fact that at a foreclosure sale one buys used machinery “as is” with little, if any, practical recourse in case of malfunction. Finally, there was testimony that cameras “went for ridiculously low prices.” Cameras are not limited to use by publishers or printers. The fact that a witness testified that the camera prices were low only establishes that the witness was unfamiliar with prices paid at complete dispersal sales of used equipment.
In sum, I believe that the sale in this case met reasonable commercial standards. One must not forget that in cases where deficiency judgments can be obtained and satisfied, the costs of the sale will be paid by the debtor. If extraordinary advertising or expert assistance is required by the courts, secured parties will become even more cautious in foreclosure situations. The expenses of sale will rise in all cases including those where the benefits may be outweighed by the additional expenditure of funds.
The standards enunciated in the majority opinion for a “commercially reasonable” sale would not be met in 99% of the foreclosure sales held in this country. This places an unrealistic burden on the lender and does a disservice to future borrowers as undoubtedly the imposition of a too stringent standard on foreclosure sales would operate to discourage lenders in the commercial field and further enhance the risk factors with a resultant increase of cost to the debtor.
The lender is charged with operating in good faith in the foreclosure of collateral and the facts here demonstrate in my view that the SBA did act in good faith in attempting to maximize the return on this distressed collateral. In these situations the borrower also has a stake in securing a fair return at the foreclosure sale and should also take steps to secure prospective purchasers for his own benefit. The bor*957rower here contended that the property was worth far in excess of the amount of the debt. These contentions are commonly asserted, but in such situations where the collateral is actually in excess of the debt, the debtor can usually make a sale before reaching the foreclosure stage. My main concern here is the impact that too stringent a standard on what is “commercially reasonable” will have on the future operation of the law merchant as codified in the U.C.C.
It is extremely important to note that the Conrads had notice of the proposed sale fourteen days before it occurred. One of the purposes of such notice is to permit the debtor or guarantor to protect his interest by finding buyers for the property. In my view, if extraordinary advertising or other expenses are to be incurred, it should be done at the discretion and in the judgment of the debtor or guarantor rather than the secured party. The debtor or guarantor is more likely to know what expenditures will be offset by increased sale proceeds. Since he ultimately pays the price, the debtor or guarantor ought to have some control over the purse strings on extraordinary sale costs.
I would reverse and grant the SB A judgment for the full amount of the deficiency.

. In addition to the majority’s rationale it is significant that the United States treated the U.C.C. as applying during most of its dealings with the defendants. That is a separate basis for applying the U.C.C. as the correct statement of federal law in this case. United States v. Terrey, 554 F.2d 685, 693 (5th Cir. 1977).