U.S. v. Porter
| Decision Date | 18 August 1978 |
| Docket Number | No. 77-1884,77-1884 |
| Parties | UNITED STATES of America, Appellee, v. Raymond A. PORTER, Virginia R. Porter and Clifford B. Smith, Appellants. |
| Court | U.S. Court of Appeals — Eighth Circuit |
David M. Korum, Sestric, Karoh, LaBarge & Korum, Kirkwood, Mo., for appellant; Kent E. Karohl, Kirkwood, Mo., on the brief.
Joseph B. Moore, Asst. U. S. Atty., St. Louis, Mo., for appellee; Robert D. Kingsland, U. S. Atty., St. Louis, Mo., on the brief.
Before GIBSON, Chief Judge, HENLEY, Circuit Judge, and SCHATZ, District Judge. *
In the fall of 1973 the Mercantile Bank of St. Charles County, Missouri, which was then known as the County Bank of St. Charles and which is hereinafter called the Bank, made a $250,000.00 loan to Kent Enterprises, Inc. of Clayton, Missouri, hereinafter referred to as Kent. Repayment of the loan to the extent of 90% Of principal and interest was guaranteed by the Small Business Administration (SBA), an agency of the United States.
In connection with its guaranty SBA made a number of requirements including requirements of guaranties from various persons and corporations who and which would become liable to SBA should the agency be required to comply with its own guaranty to the Bank. This case involves SBA's requirement that the loan be guaranteed to the extent of $25,000.00 by Raymond A. Porter and his wife, and to a like extent by Clifford B. Smith. Mr. Porter and Mr. Smith appear to have been shareholders in and directors of Kent. Other guaranties that will be mentioned were required and apart from the guaranties other requirements were made.
The Porters and Smith executed contract documents on October 18, 1973. The loan was actually closed on October 31. By the spring of 1975 the loan was in default to the extent of more than $200,000.00. SBA was required to honor its guaranty, and after it did so the Bank assigned to it the Bank's note and all rights thereunder including alleged rights against the Porters and Mr. Smith. By August, 1976 the amount due on the obligation was approximately $210,000.00, and in January, 1977 the government commenced this action against Mr. and Mrs. Porter and Mr. Smith, hereinafter called defendants, in the United States District Court for the Eastern District of Missouri. 1
The defendants answered in due course and denied liability. There was some discovery in the case, including the taking of the deposition of Oliver J. Miller, the President of the Bank. Thereafter both sides moved for summary judgment. The defendants supported their motion with their own affidavits.
The case was on the docket of Chief District Judge James H. Meredith, who assigned the cross motions for summary judgment to a United States Magistrate for consideration, report and recommendation as authorized by 28 U.S.C. § 636(b)(1)(B). In August, 1977 the Magistrate filed a full report which concluded with the recommendation that the government's motion for summary judgment be granted and that the motion of the defendants for such judgment be denied. That recommendation was accepted by Judge Meredith and a summary judgment in favor of the government was duly entered. This appeal followed.
In January, 1973 the Bank and SBA entered into an underlying agreement whereby the SBA agreed to guarantee, within limits, the repayment of certain loans made by the Bank provided that the Bank and the borrower complied with terms and conditions imposed by SBA.
Those terms and conditions might include requirements as to collateral and requirements that personal guaranties be forthcoming to protect the agency should it be required to honor its own guaranties. In the case of a corporate borrower personal guaranties might be required from key corporate personnel and their spouses and from other corporations with which the borrower was connected or affiliated. Private guarantors were expected to sign a printed SBA form entitled "Small Business Administration (SBA) Guaranty." That form provided, among other things:
. . . The Undersigned hereby grants to Lender full power, in its uncontrolled discretion and without notice to the undersigned, but subject to the provisions of any agreement between the Debtor or any other party and Lender at the time in force, to deal in any manner with the Liabilities and the collateral, including, but without limiting the generality of the foregoing, the following powers:
(a) To modify or otherwise change any terms of all or any part of the Liabilities or the rate of interest thereon (but not to increase the principal amount of the note of the Debtor to Lender), to grant any extension or renewal thereof and any other indulgence with respect thereto, and to effect any release, compromise or settlement with respect thereto;
(b) To enter into any agreement of forbearance with respect to all or any part of the Liabilities, or with respect to all or any part of the collateral, and to change the terms of any such agreement;
(c) To forbear from calling for additional collateral to secure any of the Liabilities or to secure any obligation comprised in the collateral;
(d) To consent to the substitution, exchange, or release of all or any part of the collateral, whether or not the collateral, if any, received by Lender upon any such substitution, exchange, or release shall be of the same or of a different character or value than the collateral surrendered by Lender; (e) In the event of the nonpayment when due, whether by acceleration or otherwise, of any of the Liabilities, or in the event of default in the performance of any obligation comprised in the collateral, to realize on the collateral or any part thereof, as a whole or in such parcels or subdivided interests as Lender may elect, at any public or private sale or sales, for cash or on credit or for future delivery, without demand, advertisement or notice of the time or place of sale or any adjournment thereof (the Undersigned hereby waiving any such demand, advertisement and notice to the extent permitted by law), or by foreclosure or otherwise, or to forbear from realizing thereon, all as Lender in its uncontrolled discretion may deem proper, and to purchase all or any part of the collateral for its own account at any such sale or foreclosure, such powers to be exercised only to the extent permitted by law.
The obligations of the Undersigned hereunder shall not be released, discharged or in any way affected, nor shall the Undersigned have any rights or recourse against Lender, by reason of any action Lender may take or omit to take under the foregoing powers.
If SBA agreed with the Bank to guarantee a particular proposed loan, the agency would execute and mail to the Bank another SBA form entitled "Authorization Approving Lender's Request For SBA Guaranty." That form consisted of two pages of printed matter with blank spaces to be filled in appropriately; additional pages might be attached to the form if necessary.
Section 3 of the form dealt with (a) repayment terms, interest rates and maturity; (b) use of the proceeds of the loan; (c) loan conditions required by the lender and by SBA. In connection with § 3(c) there were to be listed requirements as to liens, security instruments, insurance, guaranties, and the like.
In 1973 Kent was one of a trio of corporations that were controlled by Hanson B. Freeman with whom his son, William H. Freeman, was associated in business. Both of the Freemans were married. The two corporations, other than Kent, were Economy Equipment Co. and Kenton Controls, Inc. of Clayton, Missouri. 2
In the summer of 1973 Kent was obligated to the extent of about $110,000.00 to Fidelity Bank & Trust Co. of Creve Coeur, Missouri, and it was also indebted to Edward W. Willmering for rent on space that it had leased from Willmering. 3
In those circumstances Hanson B. Freeman and his son approached the Bank with the end in view of negotiating a $250,000.00 loan. The proceeds of the loan were to be used to pay off the obligation to Fidelity and for "working capital." The Hansons dealt with Mr. Miller who had had some dealings with Economy Equipment Co. while he was Vice President and Treasurer of Fidelity. Mr. Miller had some knowledge of the over-all Freeman operations, and he knew that part of the proceeds of the loan, if made, would be disbursed to Willmering.
As stated, the defendants Porter and Smith owned stock in Kent and were members of its Board of Directors. Other individuals connected with the Freeman operations were Dr. and Mrs. Louis W. Conradt and Arlie A. Appler, Jr.
On October 4, 1973 SBA agreed with the Bank to guarantee the loan to Kent and mailed to the Bank the authorization form that has been...
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