U.S. v. Tharp

• Decision Date: 20 August 1992
• Docket Number: No. 91-2580,91-2580
• Citation: 973 F.2d 619
• Parties: Bankr. L. Rep. P 74,810 UNITED STATES of America, Appellee, v. Douglas THARP, a/k/a Douglas G. Tharp, Vernon Tharp, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 619

973 F.2d 619

Bankr. L. Rep. P 74,810

UNITED STATES of America, Appellee, v. Douglas THARP, a/k/a Douglas G. Tharp, Vernon Tharp, Appellants.

No. 91-2580.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 10, 1992.

Decided Aug. 20, 1992.

Donald P. Raney, Searcy, Ark., argued, for appellants.

Richard M. Pence, Jr., Little Rock, Ark., argued (Charles A. Banks and Richard M. Pence, Jr., on the brief), for appellee.

Before McMILLIAN, LOKEN and HANSEN, Circuit Judges.

McMILLIAN, Circuit Judge.

Vernon Tharp and Douglas Tharp (Tharps) appeal from an order entered in the United States District Court ¹ for the Eastern District of Arkansas granting summary judgment in favor of the Small Business Administration (SBA), an agency of the United States. United States v. Tharp Bros., Civil No. LR-C-88-632, 1992 WL 367962 (E.D.Ark. June 10, 1991). For reversal, the Tharps argue that the district court erred in granting summary judgment in favor of SBA. For the reasons discussed below, we affirm the order of the district court.

BACKGROUND

In February 1981, the Tharps' business, Tharp Brothers, Inc. (TBI), obtained a $500,000.00 loan from the SBA to finance the operation of its poultry processing plant. To secure the loan, TBI executed a promissory note, a mortgage and a security agreement in favor of the SBA. Additionally, Vernon and Douglas Tharp each signed a separate personal guaranty agreement The guaranty agreements are identical (except with respect to the guarantor) and provide that the guarantor "unconditionally guarantees" payment of the promissory notes of the principal obligor, TBI. It also granted to SBA:

SBA Form 148, as further security for the SBA loan to TBI.

full power, in its uncontrolled discretion and without notice to the undersigned [guarantor] ... to deal in any manner with the Liabilities [note and all sums due under the note] 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 [TBI] to Lender [SBA], 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;

....

(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 [SBA] 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 [SBA].

The guaranty agreements further provide that the obligations of the guarantors shall not be released or in any way affected because of any action SBA may take or omit to take under the powers enumerated in the guaranty agreements. Under the terms of the guaranty agreements, SBA was required neither to pursue nor exhaust any of its rights or remedies against TBI with respect to payment of the note or to pursue or exhaust any of its rights or remedies with respect to any part of the collateral securing the note.

TBI ceased operations in 1985. In March 1985 TBI filed a Chapter 11 Bankruptcy Petition listing SBA as a secured creditor, and in 1987 TBI submitted a proposed Chapter 11 Plan of Liquidation. The plan valued the collateral at the same amount as the debt owed SBA and proposed to transfer the real and personal property collateral to SBA and to extinguish TBI's debt owed SBA. Having no objection to the bankruptcy plan for reorganization, the SBA filed its ballot of acceptance and the plan was confirmed by the bankruptcy court. In re Tharp Bros., No. LR 85-371F (Bankr.W.D.Ark. Apr. 22, 1987) (order).

After TBI conveyed its real and personal property collateral securing the loan to SBA by warranty deed, SBA sold the collateral at public auction and received $65,253.73 for the personal property and $16,555.54 for the real property. The warranty deed conveying the real property stated that the property was conveyed in consideration of the extinguishment of all indebtedness owed by TBI to SBA. Thereafter, in the present suit, SBA moved to dismiss its foreclosure claims and its other claims against TBI and moved for summary judgment against the Tharps, contending that the Tharps were personally liable for the balance of the indebtedness remaining on the loan because of their separate guaranty agreements. The Tharps opposed the motion, arguing that the bankruptcy plan extinguished their obligations or, alternatively, that SBA expressly agreed to release them from their obligations under their guaranty agreements by agreeing to the bankruptcy plan.

The district court agreed with the SBA and granted its motion for summary judgment, holding that the release of TBI in the bankruptcy proceedings did not relieve the Tharps of their obligation under the guaranty agreements. Slip op. at 11. The Tharps appeal.

DISCUSSION

We review a grant of summary judgment de novo. United States ex rel. Glass v. Medtronic, Inc., 957 F.2d 605, 607 (8th Cir.1992). The question before the district court, and this court on appeal, is whether the record, when viewed in the light most favorable to the non-moving party, shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see, e.g., Lujan v. National Wildlife Fed'n, 497 U.S. 871, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986).

Federal law governs the interpretation of the guaranty agreements. See United States v. Conrad Publishing Co., 589 F.2d 949, 953 (8th Cir.1979) (federal law rather than that of state law controls the rights and obligations of the parties); accord Victory Highway Village, Inc. v. Weaver, 634 F.2d 1099, 1101 (8th Cir.1980).

The question here is whether the discharge of TBI under the bankruptcy plan also relieved the Tharps of their obligations under their separate guaranty agreements. The Tharps argue that the transfer of the collateral to the SBA by TBI pursuant to the bankruptcy plan extinguished their obligations under the guaranty agreements. They do not contend, however, that the mere discharge of TBI in bankruptcy released them from liability. Rather, the Tharps argue that the terms of the bankruptcy plan, ² approved by the SBA, fully satisfied and extinguished any debt due SBA, and therefore, any obligations under the guaranty agreements. The Tharps argue that because the plan in essence set forth that the collateral held by TBI was equal in value to the indebtedness that TBI owed SBA, the collateral transferred by TBI to SBA extinguished the debt and satisfied in full all the monetary claims of SBA. Therefore, the Tharps contend that the agreement by SBA could not and should not be considered anything less than a full settlement of all their obligations.

The Tharps also take issue with the district court's reliance on United States v. Beardslee, 562 F.2d 1016 (6th Cir.1977) (Beardslee), cert. denied, 439 U.S. 833, 99 S.Ct. 113, 58 L.Ed.2d 128 (1978) to support its findings that the guaranty in SBA's Form 148 is absolute and conditional. They argue that there is a condition precedent to the absolute and unconditional nature of the guaranty and that the condition precedent is the existence of an indebtedness owed to the SBA. They assert that the bankruptcy plan not merely discharged the debt TBI owed to SBA, but also proposed an agreement which was accepted by SBA, whereby SBA received the real and personal property of TBI valued in the amount of the indebtedness owed. Thus, the Tharps argue the bankruptcy plan extinguished the debt and satisfied in full SBA's monetary claim. They argue there is no deficiency.

Finally, the Tharps contend that the SBA Form 148 provides that it is also subject to the provisions of any agreement between the debtor (TBI) or any other party (the Tharps) and the lender (SBA), which can limit the absolute and conditional "full powers" of the guaranty agreement. This circuit has never directly addressed this issue.

The SBA argues that the language of the guaranty agreements quoted above provides an unconditional guaranty which is not affected by any action SBA may take. ³

We agree. The Sixth Circuit in Beardslee determined the effect of a principal obligor's (Beardslee Lumber Company) release on the guarantors' (the Beardslees) obligations under SBA Form 148. In Beardslee, the SBA provided loans for a lumber company owned by the Beardslees. The lumber company was the principal obligor on the notes, and the notes were secured by real estate mortgages and security agreements...