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Chavers v. Frazier

    Brief Fact Summary. Mr. and Mrs. Chavers, (Plaintiffs) repossessed a jet from the Frazier Group, (Defendant), and sold it. Plaintiffs sought a deficiency judgment in excess of $400,000. Defendants objected on the grounds that the sale was not held in a commercially reasonable manner.

    Synopsis of Rule of Law. In order to make a determination as to whether the sale of collateral is held in a commercially reasonable manner, the court must look to the facts and circumstances of the sale.

    Facts. Plaintiffs sold a Lear jet to Defendant that was approximately worth $825,000 to $850,000 at the time of the sale. Plaintiffs gained possession of the jet on May 2, 1986 and sold it at public action on June 3, 1986. All advertising for the sale was done from May 20, 1986 to May 29, 1986 and terminated within five days of the sale. The advertisements were run in two publications. The sales packet provided to prospective buyers did not include a logbook summary. Plaintiffs did not even consider performing inspections or an overhaul as required by the Federal Aviation Authority’s regulations. Plaintiffs also failed to investigate paint options, possible financing options, or “capping” the hot section charges. The jet was purchased for $425,000.

    Issue. Whether Plaintiffs’ sale of the Lear jet was held in a commercially reasonable manner.

    Held. No. The sale was not commercially reasonable because under the total circumstances, Plaintiffs did not take all steps considered reasonable by prevailing practices to insure that the sale of the jet would bring a fair price.

    Discussion. Plaintiffs sold an expensive and sophisticated jet in an unreasonably brief time. Plaintiffs decided to sell the aircraft three weeks prior to the sale and all advertising was done within five days. Expert testimony estimated that six months to one year was needed for the fair and proper sale of an aircraft.
    The advertising was wholly inadequate for a commercially reasonable sale. The market for the craft was concentrated in corporations and professional aircraft brokers. The advertisements suggested a distress sale and those who inquired were given information that was indicative of an amateur effort to sell the aircraft.
    The use of a public auction in this case was unreasonable. Potential buyers were not identified and could not be reasonably presumed to attend an auction advertised in this manner and within this time frame. This method of sale immediately telegraphed the message that this was a “fire sale.” There was no reason to initially conduct such a distress disposal of the jet.
    The failure to reasonably prepare the aircraft for sale constitutes an unreasonable manner of sale. Plaintiffs did not consider whether maintenance should be conducted and what effect it would have on resale value. In light of the condition of the jet a hot section inspection was an important and necessary step to prepare the jet for sale and obtain a fair price.
    Lastly, the price was unreasonable. Expert testimony indicated that it was ludicrous that a plane insured for $700,000 could have decreased in value by one-half in the one year since the original purchase.


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