United States v. Rollinson
Decision Date | 28 February 1986 |
Docket Number | Civ. A. No. 84-3397. |
Citation | 629 F. Supp. 581 |
Parties | UNITED STATES of America, Plaintiff, v. Mark ROLLINSON, et al. Defendants. |
Court | U.S. District Court — District of Columbia |
Mary Coster Williams, Asst. U.S. Atty., Washington, D.C., for plaintiff.
Lynne K. Zusman, Alexandria, Va., for Rollinson.
Charles R. Corbin, Jr., Washington, D.C., for Barnett.
MEMORANDUM OPINION AND ORDER
This case is before the Court on cross-motions for summary judgment. The United States seeks monies from defendants Edmund S. Barnett, Sr., and Mark Rollinson pursuant to guaranty agreements they executed in favor of the Small Business Administration ("SBA"). Defendants do not dispute the validity of the agreements they signed or that they have not made payments under them. Rather, they claim the action is time-barred and that in any event they were discharged from liability by virtue of alterations of the underlying obligation made by the SBA without their consent. Defendant Barnett, Sr., further argues that this Court lacks personal jurisdiction over him.
In October, 1973, Sounds Reasonable, Inc. ("SRI"), executed a promissory note in favor of the District of Columbia National Bank (the "Bank"), promising to repay a loan in the principal amount of $120,000, plus interest at a rate of 11 percent per annum. The SBA had previously entered into a Loan Guaranty Agreement with the Bank on April 26, 1973, which provided that the Bank could not make or consent to any alteration in the terms of any loan agreement without SBA's prior written consent. To further induce the Bank to make the loan, SRI secured unconditional guarantees from defendants Edmund Barnett, Sr. and Mark Rollinson, as well as Frances Sherertz (formerly Frances Barnett), Edmund S. Barnett, Jr. (president of SRI), and Gary Burke.1 Each defendant signed a separate agreement in which they guaranteed the due and punctual payment of the $120,000 due under the note, and further gave the SBA the authority to modify the terms of the note.
Between November 11, 1974 and October 27, 1976, the Bank granted, at SRI's request, five deferrals of payments of principal, permitting the amounts deferred to be paid in a balloon payment at the maturity date. The Bank charged no additional interest, did not alter the amount of principal due and did not change the note's maturity date.
On April 1, 1977, and again on December 22, 1977, James A. Read, Vice President of the Bank, wrote defendants and informed them of SRI's defaults and delinquencies on the loan. The Bank did not demand payment in full, but rather requested that SRI's account be brought current. On April 11, 1978, the Bank assigned SRI's promissory note and the guaranty agreements executed by defendants to the SBA; the agency completed its purchase of the guaranteed portions of the loan on May 12, 1978. Several months later, Edmund S. Barnett, Jr., requested that the SBA refinance the loan, and on February 5, 1979, the SBA and SRI, through Barnett, Jr., executed a modification of the note. The modification deferred payment of overdue principal until the maturity date; reduced the monthly installments from $2,055 to $1,364; and pushed back the maturity date until October 16, 1989. The parties to this modification did not believe they needed the consent of the guarantors and evidently did not seek it.
SRI made a payment under the modified note on March 26, 1979, but failed to meet its next payment on April 16, 1979. On October 25, 1979, the SBA sent demand letters to each guarantor declaring that the entire balance was due and payable. The collateral securing the loan was sold on or about November 30, 1979, for approximately $17,000, and the SBA applied this amount to the outstanding debt. The government filed suit on November 6, 1984, seeking $153,710.45 in outstanding principal and interest accrued up through October 10, 1984, interest accruing from that date to the date of judgment at a daily rate of $30.27, and interest at the legal rate from the date of judgment until paid.
Actions brought by the United States government upon any contract must be filed "within six years after the right of action accrues...." 28 U.S.C. § 2415(a) (1982). The relevant inquiry, therefore, is when the SBA's cause of action first accrued. Defendants argue that it ripened on April 1, 1977, the date on which the Bank first declared that SRI had defaulted on certain loan repayments, or alternatively, on May 12, 1978, the date the Bank assigned the note to the SBA. The Court cannot agree.
United States v. Cardinal, 452 F.Supp. at 547 (quoting Moresi v. Far West Services, Inc., 291 F.Supp. 586, 588 (D.Hawaii 1968) (emphasis supplied)); see also United States v. Gilmore, 698 F.2d 1095, 1098 (10th Cir.1983) ( ); Nyhus v. Travel Management Corp., 466 F.2d 440, 453 (D.C.Cir.1972) ( ). Accordingly, while the Bank had the right to demand payment on April 1, 1977, and likewise the SBA possessed the same right on May 12, 1978 when it purchased the note, neither exercised that right at those times. As the right to accelerate the installment payments was at the option of the holder, the cause of action was not perfected until a demand was made. The SBA first made such a demand on October 25, 1979, and thus its right of action accrued on that date. The government filed this action on November 6, 1984, well within the six-year statutory period.2
Defendants argue that the seven deferrals that the Bank and the SBA granted SRI modified and altered the terms of the note and thereby discharged them from their liability as guarantors. It is, of course, true that alterations in the underlying contract between a principal debtor and a creditor discharge a guarantor. See 10 Williston on Contracts § 1222 (3d ed. 1967). Here, however, the extensions or deferrals simply did not modify or alter the underlying contract, and in any event, the guaranty agreements expressly permitted such extensions.
In United States v. Bachman, 601 F.Supp. 1537 (E.D.Wisc.1985), defendant argued that she was discharged from liability as a guarantor by virtue of an agreement between the SBA and the principal debtor in which the SBA extended the interest period, deferred payments of past due amounts of principal, and agreed that payment of the entire loan would not be accelerated even though it had already made a demand for such payment. The court concluded that these agreements in no way "modified, in any sense, the fundamental terms of the subject guaranty," id. at 1542, and thus that defendant guarantor was not discharged from her obligations. Similarly, in Chevron Chemical Co. v. Mecham, 536 F.Supp. 1036 (D.Utah 1982), the creditor granted two extensions to the principal in order to give the debtor an opportunity to bring its account current. Noting that the extensions did not affect the due date on the note, the court found that they were more in the nature of "forbearances," and "did not effect a discharge of the defendant's independent liability based upon his guaranty." Id. at 1045 (footnote omitted).
So too here, the deferrals did not affect the note's maturity date, the amount of the obligation, or the rate of interest. The fundamental terms of the underlying contract, as well as those of the guaranty agreements, were not altered or modified by the deferrals. Rather, the deferrals operated as indulgences, excusing the guarantors for a given time from performing their obligations under the guaranty agreements. The defendants suggest that the extensions were highly prejudicial to their interest, permitting SRI to increase its debt while its equipment deteriorated and the collateral securing the debt depreciated. The fact is, however, that the deferrals did not affect the maturity date of the note, and thus in no way extended the period of time for which the defendants voluntarily assumed the risks of SRI's financial insolvency....
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