674 F.2d 330 (5th Cir. 1982), 80-3872, United States v. Bellard

Docket Nº:80-3872.
Citation:674 F.2d 330
Party Name:UNITED STATES of America, Plaintiff-Appellant, v. Warren J. BELLARD, Defendant-Appellee.
Case Date:April 23, 1982
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 330

674 F.2d 330 (5th Cir. 1982)

UNITED STATES of America, Plaintiff-Appellant,


Warren J. BELLARD, Defendant-Appellee.

No. 80-3872.

United States Court of Appeals, Fifth Circuit

April 23, 1982

Page 331

Leven H. Harris, Asst. U. S. Atty., Shreveport, La., Harold Jenkins, Asst. Gen. Counsel for Postsecondary Ed., U. S. Dept. of Ed., Washington, D. C., for plaintiff-appellant.

Edwards, Stefanski & Barousse, Jim Cunningham, Crowley, La., for defendant-appellee.

Appeal from the United States District Court for the Western District of Louisiana.

Before COLEMAN, REAVLEY, and SAM D. JOHNSON, Circuit Judges.

SAM D. JOHNSON, Circuit Judge:

The district court ruled that the United States is without a common-law right to indemnification from student borrowers who default on loans guaranteed under the Federal Insured Student Loan Program, Tit. IV-B of the Higher Education Act of 1965, 20 U.S.C. § 1071 et seq. Neither the statutory provision relied on by the district court nor the program's legislative history discloses a congressional intention to deny to the Government that right of direct recovery which would otherwise arise from its agreement to serve as the borrower's guarantor. The judgment of the district court is, accordingly, reversed.


In August of 1969 defendant-appellee Warren J. Bellard borrowed $1400 from Parks School of Business to finance his education at a business college in Louisiana. 1

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Bellard acknowledged his obligation by execution of a document entitled "Promissory Note, Federal Insured Student Loan Program," which recited, in addition to the usual promises to repay, that he understood that the lender had applied for federal loan insurance on the monies advanced pursuant to the note, that he agreed to pay the lender's federal loan insurance premiums, and that the terms of the note would be interpreted in light of federal regulations pertaining to the Higher Education Act of 1965 (the Act).

The terms of the loan tracked the terms dictated by the Act as preconditions to qualification for federal loan insurance. The note was unsecured, section 427(a)(2)(A), 20 U.S.C. § 1077(a)(2)(A). Interest was set at the rate of seven percent simple per annum, section 427(b), 20 U.S.C. § 1077(b), as amended by Act of Aug. 3, 1968, Pub.L.No.90-460, § 2(a)(1), 82 Stat. 635, with payment to be deferred at the option of the lender until commencement of the loan repayment period, § 427(a)(2)(D), 20 U.S.C. § 1077(a)(2)(D). The lender exonerated Bellard of liability for any portion of the interest payable by the United States government. Section 427(a)(2)(E), 20 U.S.C. § 1077(a)(2)(E), as amended by Act of Oct. 16, 1968, Pub.L.No.90-575, Title I, § 113(b)(2), 82 Stat. 1021. 2 Repayment of principal and accrued interest, if any, was agreed to begin twelve months after Bellard stopped carrying at least half of a normal full-time academic workload at an eligible institution, section 427(a) (2)(B), 20 U.S.C. § 1077(a)(2)(B); it could be further postponed up to three years, while Bellard served his country in the armed forces, the Peace Corps, or as a VISTA volunteer. Section 427(a)(2)(C), 20 U.S.C. § 1077(a)(2)(C), as amended by Act of Oct. 16, 1968, Pub.L.No.90-575, Title I §§ 116(b)(2), 117(c), 82 Stat. 1021, 1023. Bellard's liability would be cancelled completely in the event of his death or total and permanent disability. Section 437(a), 20 U.S.C. § 1087(a), as added by Act of Oct. 16, 1968, Pub.L.No.90-575, Title I, § 113(a), 82 Stat. 1020.

Bellard dropped out of school in late 1969. The note came due in late 1970, but Bellard made no payments. On April 10, 1974, the United States paid the lender's insurance claim. Its attempts at collection from Bellard met with no greater success than had the lenders. On October 17, 1979, it instituted action against him to recover the principal amount of the note and the interest accrued.

Debate in the district court focused on the nature of the interest asserted by the United States. Characterization of the interest was critical: on it would turn the determination of whether the six-year prescriptive period limiting actions by the Government on a contract, 28 U.S.C. § 2415(a), had run. 3 Bellard contended

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that section 430(b) of the Act, 20 U.S.C. § 1080(b), which provides that the lender's interest in the loan is to be assigned to the Government upon its payment of the lender's claim, states the entirety of the rights accruing to the Government upon payment of a lender's claim. As an assignee the Government would accede to precisely those interests held by the lender-assignor; its derivative cause of action against Bellard would have accrued upon his default in late 1970 or early 1971 4 and expired almost three years before suit was filed. The Government contested Bellard's characterization, arguing that it sued on the note not in its status as the original lender's assignee, but as a surety whose cause of action accrued when it made good Bellard's obligation. By the United States' reckoning, it filed suit with six months to spare.

The district court decided that section 430(b) reflected the Congress' intention to limit the Government's rights against student borrowers to the derivative interest of an assignee. It sustained Bellard's affirmative defense, and granted him summary judgment. The Government appeals.


Bellard does not deny that the Government acted as the guarantor 5 of his loan. His position is advisedly taken: the United States' obligations under the Federal Insured Student Loan Program bring it squarely within hornbook definitions of a guarantor. 6 The hallmark of a contract of

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guaranty is, of course, an agreement, integrated with the primary undertaking and made enforceable by consideration, to answer for the debt of another upon that other's failure to pay. 38 Am.Jur.2d Guaranty §§ 14, 15 (1968); La.Civ.Code Ann. art. 3035 (West); Louisiana Bank & Trust, Crowley v. Boutte, 309 So.2d 274, 277 n.4 (La.1975); American Bank & Trust Co. v. Blue Bird Restaurant & Lounge, Inc., 279 So.2d 720, 722 (La.App.1973), affirmed, 290 So.2d 302 (La.1974). 7 Just such an agreement was made by the United States with respect to Bellard's student loan. The Government's participation was evident from the transaction's inception in the meticulous adherence of the loan agreement to the Act's requisites for qualification for federal insurance. Section 427, 20 U.S.C. § 1077; see Part I, supra. The Government's insistence on the use of precisely those terms in exchange for its promise to hold the lender harmless upon the borrower's default, section 430(a), 20 U.S.C. § 1080(a), manifests a careful and comprehensive design, Hayes v. Human Resources Administration of the City of New York, 648 F.2d 110, 111-12 (2d Cir. 1981); American Bank of San Antonio v. United States, 633 F.2d 543, 545-46 (Ct.Cl.1980); De Jesus Chavez v. LTV Aerospace Corp., 412 F.Supp. 4 (N.D.Tex.1976), to further the national interest in higher education by inducing the private sector to make available necessary financing on favorable terms. Section 421(a), 20 U.S.C. § 1071(a). The interdependencies among the borrower, the lender, and the United States resulting from that design are a situational adaptation of long-recognized principles of guaranty. Grove City College v. Harris, 500 F.Supp. 253, 260, 268 (W.D.Pa.1980); accord, United States v. Lujan, 520 F.Supp. 282 (D.N.M.1980); Phillips v. Pennsylvania Higher Education Assistance Agency, 497 F.Supp. 712 (W.D.Pa.1980), rev'd on other grounds, 657 F.2d 554 (3d Cir. 1981); United States v. Wilson, 478 F.Supp. 488 (M.D.Pa.1979); United States v. Winter, 319 F.Supp. 520...

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