Curry v. US, Small Business Admin., C-86-4903 WHO.

Decision Date18 June 1987
Docket NumberNo. C-86-4903 WHO.,C-86-4903 WHO.
Citation679 F. Supp. 966
PartiesElizabeth CURRY, formerly known as Elizabeth Lacy, Plaintiff, v. UNITED STATES of America, SMALL BUSINESS ADMINISTRATION, and Andrew Graves, an individual, Defendants.
CourtU.S. District Court — Northern District of California

Gene Cain, Walnut Creek, Cal., for plaintiff.

Joseph Russoniello, Judith Whetstine, Asst. U.S. Atty., San Francisco, Cal., for defendants.

OPINION AND ORDER

ORRICK, District Judge.

This case, by cross-motions for summary judgment, presents the question whether a federal agency, here, the United States Small Business Administration (the "SBA"), which makes loans in California evidenced by promissory notes secured by deeds of trust containing powers of sale, may exercise the power of sale if the statute of limitations has run against it on the promissory note. This Court holds that it can for the reasons hereinafter stated and, accordingly, grants the lender's (defendant SBA) motion for summary judgment and denies the borrower's (plaintiff Curry) motion for summary judgment.

I

Curry applied for and received a loan for $21,000 from the SBA in July 1970 in order to make improvements on her home that would enable her to operate a day care center on the premises. In consideration for the loan, Curry executed a promissory note on July 13, 1970, in favor of the SBA that provided for monthly installment payments of $186, with the balance due fifteen years from the date of the note. Declaration of Idamari Taylor in Support of Defendants' Motion for Summary Judgment (hereinafter "Taylor Declaration"), Exhibit A, filed Dec. 15, 1986. As security for the loan, Curry conveyed a deed of trust on her house and property to Title Insurance and Trust Company, as trustee for the SBA, on July 13, 1970. Taylor Declaration, Exhibit B.

Curry paid the installments on the loan until mid-1974, when she began to encounter fiscal difficulties with the day care center. From 1974 until 1977, Curry and the SBA engaged in various discussions with the intent of agreeing upon a suitable repayment plan that would cover the delinquent payments, as well as the balance of the loan principal and interest. See Taylor Declaration, Exhibits E & F. In a declaration submitted in support of her motion for a temporary restraining order filed with the Alameda County Superior Court in August 1986, Curry makes much of her claim that an officer of the SBA told her that the SBA would "charge off," or forgive, her loan. She states: "In July 1974, I was advised by SMALL BUSINESS ADMINISTRATION officer R.N. Read that my loan would be transferred to the inactive files, would be charged off and removed from their loan records. Mr. Read directed me to contact the SMALL BUSINESS ADMINISTRATION in 10 years to have deed of trust reconveyed." Declaration of Elizabeth Curry in Support of Motion for an Order to Show Cause and for a Temporary Restraining Order (hereinafter "Curry Declaration"), filed Aug. 19, 1986. The declaration does not commence to meet the strict requirements of Federal Rule of Civil Procedure 56(e) that the declarant "must set forth specific facts showing that there is a genuine issue for trial." The declaration fails to give an approximate time in July 1974 for her conversation with Read, let alone the circumstances surrounding the statements allegedly made by Read, or whether they were made by Read in person or over the telephone. In addition, a letter from Read dated July 2, 1974, demonstrates the SBA's intention to force collection of the loan and not to forgive it. Taylor Declaration, Exhibit D. Furthermore, Curry, in a letter to the SBA dated September 16, 1974, states that she would pay $186 "twice a month as promised," and again in a letter from her to the SBA dated December 23, 1977, she promises to get back on a regular payment schedule by January 1, 1978. Taylor Declaration, Exhibits F and H. These exhibits establish beyond a peradventure of a doubt the absence of a genuinely contested issue of material fact concerning the alleged forgiveness of Curry's SBA loan.1

Following numerous negotiations, the SBA wrote Curry on July 7, 1978, citing the defaulted status of her loan, and informing her that foreclosure on her house was imminent unless she was able to pay in full her "arrearage, or propose a satisfactory and reasonable repayment schedule acceptable to all parties...." Taylor Declaration, Exhibit G; Memorandum in Support of Defendants' Motion for Summary Judgment, filed Dec. 12, 1986, at 3 (hereinafter "Defendants' Memorandum"). As a last alternative, the SBA also proposed in the same letter that if Curry felt that full payment was impossible, she could "request compromise consideration utilizing the form enclosed." Id.

Curry's day care center had by this time been discontinued due to a lack of business, and her income was insufficient to provide for much more than the daily support of herself, her children, and her husband, a pastor in a local church in Oakland. Accordingly, Curry opted for the SBA's proposed "compromise consideration request," and submitted an Offer in Compromise ("Offer") and a Financial Statement of Debtor to the SBA on July 16, 1978. Taylor Declaration, Exhibit H. This Offer was never acknowledged by the SBA, nor was any response to the Offer ever sent to Curry. Curry, having heard nothing from the SBA concerning her loan for over six years, finally wrote the SBA in September 1984 to inquire if the SBA could now reconvey the deed of trust on her house back to her. Only this letter from Curry prompted the SBA to reexamine the file on her loan, and consider its treatment of the loan's status.

After retrieving the loan file, and reexamining the loan's status, the SBA finally responded in early 1985 to Curry's request by stating that plaintiff would either have to repay the loan in full or face a forced sale of her home. After extensive negotiations once again, the SBA elected to exercise the power of sale contained in the deed of trust and caused a notice of default to be recorded on January 14, 1986, against Curry's home and property in Oakland. Defendant's Memorandum at 4. After further talks, the SBA made a final proposal to Curry on May 19, 1986, that she pay $26,000 within ninety days to satisfy the loan or face foreclosure. Taylor Declaration, Exhibit I. Due to Curry's strained financial condition, she was unable to do so. She then filed a quiet title action in state court on August 13, 1986, seeking a declaration that the SBA no longer had a valid property interest in her home due to the expiration of the underlying obligation.

The SBA removed the case to this Court on August 22, 1986, and sought to proceed with a trustee sale on the Curry home pursuant to its power of sale under the deed of trust. Curry then brought a motion for injunctive relief and for summary judgment, and the SBA made a motion to dismiss. On October 23, 1986, after oral argument, this Court stayed the proposed foreclosure sale, and ordered the parties to file cross-motions for summary judgment. The essential facts not being in dispute, both parties agreed that this case may be disposed of on cross-motions for summary judgment.

II

The cross-motions for summary judgment center on whether the SBA's power of sale contained in the deed of trust on Curry's property is still valid and enforceable, despite the passage of time and the possible extinguishing of the underlying promissory note. The key issues that must be decided in order to resolve this convoluted matter are whether the statute of limitations has barred the SBA from collecting the money due it under the promissory note, and if so, whether that fact will render the power of sale in the deed of trust invalid and without effect.

A. The Promissory Note.

Curry has been in default on the original promissory note at least from the date when she mailed the offer to the SBA. At that point, she had not made any payments on the loan since October 17, 1975 (Taylor Declaration, Exhibit C, at 4), and she did not make any further payments after mailing the Offer to the SBA. It is undisputed that the SBA did not contact Curry from July 7, 1978, when the SBA informed her that foreclosure would be pursued if an acceptable settlement of the delinquent payments was not reached, until early 1985, when the SBA finally responded to Curry's request that the SBA reconvey the deed of trust on her home back to her. See Curry Declaration, Exhibit A. Even allowing for an additional ninety days after the Offer was sent by Curry to the SBA, a reasonable period of time for the SBA to assess its options on Curry's loan and contact her as to their next action, the SBA failed to act on the loan for over six years after it had informed Curry that it would foreclose on her home if a satisfactory repayment schedule was not worked out.

Both parties agree that when the United States brings an action founded on a contract, it is bound by the statute of limitations set forth in 28 U.S.C. § 2415(a): "every action for money damages brought by the United States or an ... agency thereof which is founded upon any contract express or implied in law or fact, shall be barred unless the action is brought within six years after the right of action accrues. ..." The question to be decided is when did the right of action on the Curry promissory note accrue. The SBA asserts that the promissory note was an installment contract, with an optional acceleration clause that was never exercised. The general rule is that "where the acceleration of the installment payments in cases of default is optional ..., then the entire debt does not become due on the mere default of payment but affirmative action by the creditor must be taken to make it known to the debtor that he has exercised his option to accelerate...." United States v. Rollinson, 629 F.Supp. 581, 584 (D.D.C.1986), citing United States v. Cardinal, 452 F.Supp. 542, 547 (D.Vt.1978). However, "a party is...

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