United States v. Houff, 8725.
| Decision Date | 21 December 1962 |
| Docket Number | No. 8725.,8725. |
| Citation | 312 F.2d 6 |
| Parties | UNITED STATES of America, Plaintiff, Appellee, v. Louis B. HOUFF, Jr., and C. E. Keefer, Defendants and Third-Party Plaintiffs, Appellants, v. The C. F. SAUER COMPANY, Third-Party Defendant, Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
William Rosenberger, Jr., Lynchburg, Va. (John L. Abbot and William L. Wilson, Lynchburg, Va., on brief), for appellant.
Thomas B. Mason, U. S. Atty., for appellee, United States of America.
R. E. Cabell, Jr., Richmond, Va., for appellee, C. F. Sauer Co.
Before SOPER and BOREMAN, Circuit Judges, and WINTER, District Judge.
When appellee, the United States of America, assignee of a guaranty, a loan agreement and a note evidencing a loan made by The Campbell County Bank, of Rustburg, Virginia, to Famous Virginia Foods Corporation (hereafter called "Famous Foods"), under the provisions of the Small Business Administration Act (15 U.S.C.A. § 636), sued appellants, two officers of Famous Foods, and guarantors of the loan, on their agreement of guaranty, the lower court granted summary judgment for the appellee in the amount of $54,551.87, with interest. Because of the lack of diversity of citizenship between the appellants and the third-party defendant and the absence of a federal question, the lower court also denied appellant's motion for summary judgment and dismissed appellant's third-party complaint against The C. F. Sauer Company, which, subsequent to the making of the loan, acquired a controlling stock interest in Famous Foods. This appeal does not question the correctness of the dismissal of the third-party complaint. It raises only the correctness of one of the grounds advanced by appellants as a defense to summary judgment against them and the basis for their requested summary judgment which was denied, namely, whether they had been discharged on their guarantees by reason of an alleged material alteration of the loan agreement and the guaranty, without their consent, by the lender, and the assignee (appellee, United States of America). Since we agree with the determination of the lower court, we affirm.
The precise issue arises as follows: By a loan agreement, dated July 6, 1959, Famous Foods obtained a stand-by credit to borrow up to $225,000.00 from The Campbell County Bank, of Rustburg, Virginia (hereafter called the "Bank"). The loan was repayable in installments, at stated times, with the last payment due on June 25, 1960. Famous Foods pledged, as collateral security for payment of the debt, inventories of finished pickles, "having a current market value of not less than 154% of the amount of the debt which may be from time to time outstanding." Pickles were to be placed in a public warehouse and non-negotiable warehouse receipts were to be issued to the Bank. By other provisions of the agreement, it was stated, "Famous Foods may from time to time, with the written consent of the Bank, substitute collateral of like kind and value for which warehouse receipts shall be issued to the Bank, and all the provisions, conditions and warranties contained in this agreement shall be applicable to such substituted collateral * * *." (Emphasis supplied.)
Famous Foods, "with the written consent of the Bank," was also given the right to withdraw collateral upon the prior payment to the Bank of 65% of its current market value, subject to the limitation that the collateral might at no time be diminished to an aggregate value of less than 154% of the then outstanding debt. Additionally, Famous Foods agreed to deposit additional collateral with the warehouse company and to furnish the Bank with warehouse receipts as evidence thereof at any time that the current market value of the collateral fell below 154% of the then unpaid balance of the debt. "Current market value" for the purposes of the agreement was defined to mean the wholesale market price of the collateral f. o. b. the plant or factory of Famous Foods.
A number of other provisions customary to such loans were included in the loan agreement, including a provision that in the event of a default in repayment of the loan, breach of any covenant of the loan agreement, or an assignment for the benefit of creditors, bankruptcy or the like, the Bank, at its option, might declare the unpaid balance of the loan immediately due and payable, and might sell the collateral either as a whole, or in parts or parcels, and, after deducting the costs of sale, apply the proceeds derived therefrom to the payment of the debt. The Bank was also given the right to sell the note evidencing the debt, and to assign the loan agreement and its interest in the collateral.
At the time that the loan agreement was executed and the note given, appellants, jointly and severally, executed a guaranty agreement, guaranteeing to the Bank, and its assigns, the punctual payment of the indebtedness, both principal and interest, when due, whether by acceleration or otherwise. The guaranty agreement also provided:
"The undersigned hereby grants to Bank full power, in its uncontrolled discretion and without notice to the undersigned, but subject to the provisions of any agreement between the Debtor Famous Foods or any other party and Bank at the time in force, to deal in any manner with the liabilities and the collateral * * *."
(Emphasis supplied.)
There were also further provisions, not pertinent here, which need not be recited.
By a subsequent agreement the loan agreement was amended, with appellants' written consent, to permit Famous Foods to withdraw collateral from the warehouse upon payment of 75% of the current market value of the collateral intended to be withdrawn (rather than 65% as originally), provided that the total collateral not be diminished to an aggregate value of less than 133 1/3% of the outstanding amount of the debt at any time (rather than 154% as originally). The consent of the guarantors to this amendment was conditioned upon the fulfillment of certain conditions, which were apparently met, because there is no...
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