U.S. v. Mallett, 85-1477

• Citation: 782 F.2d 302
• Decision Date: 28 January 1986
• Docket Number: No. 85-1477,85-1477
• Parties: 42 UCC Rep.Serv. 1515 UNITED STATES of America, Plaintiff, Appellee, v. Ernest J. MALLETT, Jr. and Janet L. Mallett, Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 302

782 F.2d 302

42 UCC Rep.Serv. 1515

UNITED STATES of America, Plaintiff, Appellee, v. Ernest J. MALLETT, Jr. and Janet L. Mallett, Defendants, Appellants.

No. 85-1477.

United States Court of Appeals, First Circuit.

Argued Oct. 11, 1985.

Decided Jan. 28, 1986.

Marc R. Scheer, Concord, N.H., with whom Robert L. Chiesa, William S. Gannon and Wadleigh, Starr, Peters, Dunn & Chiesa, Manchester, N.H., were on brief for defendants, appellants.

Bruce E. Kenna, Asst. U.S. Atty., with whom Richard V. Wiebusch, U.S. Atty., Concord, N.H., were on brief for plaintiff, appellee.

Before BOWNES and TORRUELLA, Circuit Judges, and HILL, ^* Senior District Judge.

TORRUELLA, Circuit Judge.

We have before us the appeal from a summary judgment granted in a collection action brought under 28 U.S.C. Sec. 1345. The District Court for the District of New Hampshire found defendants/appellants Ernest and Janet Mallett liable to the Small Business Administration (SBA) for over $132,000 due on a defaulted loan for which they signed a personal guaranty. The undisputed facts reveal that in November 1973, Linderhoff Resorts, Inc. borrowed $111,900 from the SBA. The appellants, along with other individuals, executed a In an effort to avoid a summary judgment against them, appellants alleged several issues of material fact which they claim form the basis for affirmative defenses. The district court found the defenses meritless. It held that the "issues" of fact were immaterial because, in light of the clear language of the guaranty agreement, appellants had waived the various rights they sought to claim.

personal guaranty on a standard SBA guaranty form, Form 148, to secure Linderhoff's loan. Over the next several years, Linderhoff was often delinquent in its loan repayment. It finally ceased making payments altogether at the end of 1977. Prior to that time, however, while payments were still being made, the SBA released portions of the collateral. In November 1978, the agency demanded repayment in full, invoking the acceleration clause of the promissory note signed at the time the loan was made. Shortly thereafter, Linderhoff filed a bankruptcy petition. Under the bankruptcy proceedings, Merchants Savings Bank, the holder of the first mortgage, sold the remaining real estate security at a foreclosure sale. The SBA, without proceeding against the other guarantors, filed suit against the Malletts to enforce their guaranty agreement.

The Malletts, on appeal, have raised basically the same issues which they brought before the district court. They allege that the SBA's conduct violated the guaranty's limitation on the SBA's control over the security. They claim that the agency unreasonably delayed in pursuing its remedies against Linderhoff, failed to notify them of the serious nature of the default in time for them to take appropriate corrective action, failed to pursue other available remedies, altered materially the terms of repayment of the debt, failed to participate in the foreclosure proceedings, and made other decisions of a similar nature which constitute mismanagement.

We must agree with the district court that the express language of the guaranty agreement specifically bars the defenses raised. (See Appendix). Appellants do not argue that there are any ambiguities in the language used. The case law is replete with examples of guarantors attempting to traverse this standard-form guaranty language. The courts, however, have uniformly upheld the "waiver-of-defenses" language. See, e.g., United States v. Andresen, 583 F.Supp. 1084 (W.D.Va.1984); United States v. Kyte, 705 F.2d 967, 969 (8th Cir.1983); United States v. Southern Cycle, 567 F.2d 296, 297 (5th Cir.1978); United States v. Outriggers, Inc., 549 F.2d 337, 339 (5th Cir.1977); United States v. Kurtz, 525 F.Supp. 734, 745-48 (E.D.Pa.1981), aff'd mem. 688 F.2d 827 (3d Cir.1982); United States v. Houff, 202 F.Supp. 471, 475-76 (W.D.Va.), aff'd, 312 F.2d 6 (4th Cir.1962).

Appellants argue that the SBA did not deal with the security "as permitted by law" after the default occurred. They allege that they were mislead concerning the SBA's intention to bid at foreclosure, and the failure of SBA to actually enter the bidding, thereby, allowing the property to be sold for a grossly inadequate amount, and the release of collateral exceeded what the SBA was permitted by law to do. The district court correctly dealt with the first two points:

"Defendants fail to make out any 'reasonable reliance' upon a 'definite representation' by a governmental agent. See Heckler v. Community Health Services, U.S. , 104 S.Ct. 2218, 2223 (1984). First even accepting defendant Ernest Mallett's affidavit assertions as true, the SBA indicated that 'it appeared as if the SBA was going to bid at the foreclosure sale and that said representative did not feel as though I had anything to worry about inasmuch as the SBA bid was going to cover its mortgage interest in the property and the debt owed at the time by the Borrower.' Such a conditional, tentative statement does not rise to the level of a promise or definite assertion of future conduct which might lead a reasonable man to forego attending the sale and protecting his own potentially adverse United States v. Mallett, Jr., No. 84-392-D, slip op. at 10-11 (D.N.H. April 1, 1985) (Devine, C.J.).

                interests.  Second defendants could not reasonably rely upon the statement of the SBA administrative officer as a reliable indicator of SBA's future conduct or as a release of defendants guaranty obligation, inasmuch as the law expressly states that only the Administrator of SBA may 'compromise ... all claims against third parties assigned to the Administrator in connection with loans by him.'    Title 15, U.S.C., Sec. 634(b)(4).    See United States v. Gilmore, 698 F.2d 1095, 1098 (10th Cir.1983);  United States v. R & D One Stop Records, Inc., 661 F.2d 433, 434-45 (5th Cir., 1983)."
                

As also pointed out by the district court, the real estate in question was encumbered with two prior mortgages totaling over $300,000. Even without considering the appellants' clear waiver under the guaranty of any right in the collateral, the SBA's failure to bid on the property was reasonable. Bidding the full value of its mortgage would not have given the agency title to the property. Had the property sold for an amount anywhere near what the Mallett's believed it to be worth, or even an amount greater than the superior liens, the SBA would have recovered some of its debt from the proceeds of the sale. The fact that six months later the property sold for $130,000 or about $50,000 in excess of the amount paid at foreclosure, indicates that the SBA would still not have collected anything on its loan had it been originally sold for that amount at foreclosure. The losses were suffered by the primary mortgages holder, who organized and directed the original foreclosure sale. Moreover, appellants do not challenge the manner in which that sale was organized, promoted and held, and it is such challenges which serve as the basis for the cases that appellants cite regarding the commercial reasonableness exercise of power to the extent permitted by law. See, e.g., United States v. Willis, 593 F.2d 247 (6th Cir.1979); United States v. Conrad Publishing, Co., 589 F.2d 949 (8th Cir.1978); United...