Opinion
CIVIL NO. 88-0088
February 28, 1989, Decided
For USA, Plaintiff: Paul E. Beck, Jr., Asst US Attorney, King of Prussia, PA. James A. Gibbons, Scranton, Pa.
MEMORANDUM
This matter is before the court on the parties' cross motions for summary judgment. The action, brought on behalf of the Small Business Administration [SBA], is for money judgment and mortgage foreclosure against the defendants-mortgagors and real owners of the property in question. Specifically, on or about September 29, 1975, the SBA authorized disbursement of a loan to Vista Homes, Inc. by the First National Bank of Jermyn under the terms of a deferred guaranty contract, whereby SBA guaranteed ninety percent [90%] of the loan balance in the event of default by Vista Homes, Inc. The loan funds in the amount of $ 350,000.00 were disbursed on or about March 2, 1976. In consideration of the loan to Vista Homes, Inc., the First National Bank of Jermyn received the personal guaranty of Thomas and Constance Hosko, the defendants. In further consideration for the loan, the defendants granted to the First National Bank of Jermyn a mortgage as collateral on real estate located at 1121 Bryn Mawr Street and 928 South Main Street in Scranton, Pennsylvania.
On or about February 13, 1981, the SBA honored its guaranty agreement on the aforesaid loan, and in consideration received assignments of the note, guaranty and mortgage. The defendants failed to comply with the provisions of the promissory note and mortgage in that they failed to pay the installments of principal and interest when due. In accordance with the terms of the instrument, the SBA accelerated the obligation and declared the entire amount of the obligation due and owing, sending defendants notice of the acceleration on October 20, 1987.
On January 21, 1988, the plaintiff, United States of America, on behalf of the Small Business Administration [SBA], filed a complaint based on the aforesaid agreements. An answer to the complaint raising affirmative defenses was filed by defendants on April 21, 1988.
A motion for summary judgment was filed by the plaintiff on September 7, 1988 and a cross motion for summary judgment was filed by the defendants on September 12, 1988. Plaintiff's statement of uncontroverted material facts and memorandum of law in support of the motion for summary judgment was filed on September 16, 1988. Defendants' brief in support of the cross motion for summary judgment was filed on September 22, 1988. Depositions of the defendants were submitted on behalf of plaintiff's motion.
Summary judgment is appropriate only when there is no genuine issue of material fact to be resolved. Fed. R. Civ. P. 56; Peterson v. Lehigh Valley Dist. Council, 676 F.2d 81, 84 (3d Cir. 1982); Continental Ins. v. Bodie, 682 F.2d 436, 438 (3d Cir. 1982). All doubts as to the existence of a genuine issue of material fact must be resolved against the moving party. The entire record must be examined in light most favorable to the non-moving party. Continental Ins., supra. Additionally, the Supreme Court has recently ruled that Fed. R. Civ. P. 56(c) "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552-2553, 91 L. Ed. 2d 265 (1986), cert. denied, 484 U.S. 1066, 108 S. Ct. 1028, 98 L. Ed. 2d 992 (1988). The Court further stated that "Rule 56(e) . . . requires the non-moving party to go beyond the pleadings and by [his] own affidavits, or by the 'depositions, answers to interrogatories, and admissions on file,' designate 'specific facts showing that there is a genuine issue for trial.'" Id. at 322, 106 S. Ct. at 2553.
The major issue to be resolved in this action involves the issue of the statute of limitations. Both parties are in agreement that the governing statute of limitations is found at 28 U.S.C. § 2415(a), and is six [6] years. The disagreement arises as to when the cause of action accrued thereby commencing the statute of limitations.
While defendants initially raised a question involving pursuit of other guarantors in its answer, the defendants appear to have abandoned this argument. However, this court has reviewed the plaintiff's argument and supporting case law on this question and we must agree with plaintiff that the terms of the Personal Guaranty Agreement, as well as the pertinent case law, establish the unconditional nature of the Agreement and the right of the SBA to elect to seek recovery from any guarantor without seeking recovery against other guarantors. See Document 24, pp. 6-8.
The defendants assert that the plaintiff's right of action accrued upon the filing of the bankruptcy of Vista Homes, Inc. in 1980 or no later than February 13, 1981 upon its receipt of assignments of the note, guaranty and mortgage. The plaintiff argues that the statute of limitations began to run on the date of demand under the SBA loan instruments.
In order to determine when the cause of action accrued, we shall consider the authorities relied on by the parties. In United States v. Rollinson, 629 F. Supp. 581 (D. D. C. 1986), a case involving guaranty agreements executed in favor of the SBA, the relevant inquiry was when the SBA's cause of action first accrued. The defendants argued alternatively that the cause of action ripened on either the date on which the bank first declared the default on certain loan payments or else the date on which the bank assigned the note to the SBA. Disagreeing, the court stated
where the acceleration of the installment payments in cases of default is optional, on the part of the holder, then the entire debt does not become due on the mere default of payment but affirmative action by the creditor must be taken to make it known to the debtor that he has exercised his option to accelerate… . Rollinson, supra. at 584.
Because 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. In this case, the SBA first made such a demand on October 25, 1979 and its right of action accrued on that date.
A similar conclusion was reached by the court in Curry v. United States, 679 F. Supp. 966 (N. D. Calif. 1987), wherein the court held that where a promissory note is an installment contract with an optional acceleration clause, then the entire debt does not become due on the mere default of payment, but affirmative action must be taken by the creditor to make it known to the debtor that he has exercised his option to accelerate. The court went on to hold, however, that a party is not at liberty to hold off operation of the statute of limitations inordinately by failing to make demand, and such demand must be made within a reasonable time.
We must now look to the underlying note in the instant action to determine whether the acceleration of the debt was optional on the part of the holder. A review of the instant note shows a division as to when and how acceleration was to have taken place. Specifically, the document states that "the indebtedness shall immediately become due and payable, without notice or demand, upon appointment of a receiver or liquidator… . Holder is authorized to declare all or any part of the indebtedness immediately due or payable upon the happening of any of the following events … ." [Emphasis added]
See Document 1, Government Exhibit A.
Defendants assert that acceleration was automatic in the instant case under the first provision of the controlling document and that the entire indebtedness became due and payable upon the bankruptcy of Vista Homes, Inc. in 1980. We agree with this assertion. However, our finding that the indebtedness was automatically accelerated upon the bankruptcy of Vista Homes, Inc. in 1980 does not end our inquiry on the statute of limitations question. 28 U.S.C. § 2415(a) provides in pertinent part:
…provided, that in the event of later partial payment or written acknowledgment of debt, the right of action shall be deemed to accrue again at the time of each such payment or acknowledgement … .
On June 14, 1982, a letter was sent on behalf of the SBA from the Chief of the Liquidation Division to the defendants indicating that there was an outstanding balance on the Vista Homes, Inc. loan and requesting defendants to file financial statements and tax returns so that the SBA could determine a course of action to follow in collecting the debt. In response, defendant Thomas Hosko forwarded a cover letter and financial statement to the SBA. Included in the financial statement was a liability listed to the Small Business Administration in the amount of $ 225,000.00 and an admission that he was guarantor of an SBA loan for Vista Homes, Inc. in the amount of $ 225,000.00.
Document 19, Government Exhibit F; Document 24, Government Exhibit A-1.
Document 19, Government Exhibit G.
Document 24, Government Exhibit A-2.
In Federal Deposit Ins. Corp. v. Cardona, 723 F.2d 132 (1st Cir. 1983), the court found that listing of a debt on an estate tax return constituted effective acknowledgment of the debt. Citing Professor Corbin, 1A Corbin on Contracts § 216 (1963), the court stated
the new promise to pay can be made in any form of expression, by word or act, that is capable of understanding and proof. It is very generally held that an acknowledgment that a sum of money is actually due, if made without any accompanying denial of willingness, justifies the inference of a promise to pay. Cardona, supra, at 137.
In the instant action, the defendants responded to a letter from the SBA addressing the Vista Homes, Inc. loan and requesting information in order to orderly settle the debt. In his response letter dated June 28, 1982, defendant Thomas Hosko agreed to work out a mutually agreeable solution to the problem and enclosed his personal financial statement and copies of his 1980 and 1981 tax returns. Included in the financial statement, was a liability to the SBA in the amount of $ 225,000.00 and a response which indicated that he was guarantor of an SBA loan - Vista Homes, Inc. for $ 225,000.00. We find that the entries on the financial statement constituted an effective acknowledgment of the debt.
While we recognize that the letter of June 28, 1982 and the personal financial statements are signed by Thomas Hosko, we do not believe that this creates an impediment to our findings. The letter of June 14, 1982 from the SBA was addressed to both defendants. The law is clear that each spouse has implied authority to do any act reasonably incidental to the protection and preservation of entireties property without any special authorization, provided that the fruits of such action inure to the benefit of both and the estate is not terminated thereby. See J. R. Christ Construction Co. v. Olevsky, 426 Pa. 343, 232 A.2d 196 (1967); Wickerham v. Vitori, 345 Pa. 111, 25 A.2d 801 (1942); Williams v. Barbaretta, 359 Pa. 488, 59 A.2d 161 (1948). We believe that Thomas Hosko was acting on behalf of both defendants in the preservation of their entireties properties when he agreed to work out a mutually agreeable solution to his problem with the SBA and submitted financial statements in furtherance of this objective.
As noted above, 28 U.S.C. § 2415(a) provides that in the event of written acknowledgment of debt the right of action shall be deemed to accrue again, at the time of the acknowledgment. The instant right of action accrued on June 27, 1982, the date of the financial statements. The complaint was filed on January 21, 1988. Thus, the complaint was filed within the six [6] year statute of limitations period.
The last issue which plaintiff raises in its motion for summary judgment and which has been responded to by the defendants in their cross motion, involves whether the SBA may foreclose on the two mortgaged properties, even if the statute of limitations bars collection of the debt. Because we have found that the statute of limitations does not bar collection of the debt owing the SBA, we find it unnecessary to address the foreclosure issue.
We have reviewed the entire record in the instant action in the light most favorable to defendants, and we cannot find that any genuine issue of material fact remains to be resolved. Accordingly, we will grant plaintiff's motion for summary judgment and will deny defendants' cross motion. An appropriate Order will be entered.
ORDER
NOW, THEREFORE, this 28th day of February, 1989, IT IS HEREBY ORDERED THAT:
the motion for summary judgment of the plaintiff, United States of America, on behalf of its agency Small Business Administration, is granted;
the cross motion for summary judgment of defendants, Thomas Hosko and Constance Hosko a/k/a Constance A. Hosko, is denied;
judgment is hereby entered in favor of the plaintiff United States of America on behalf of its agency Small Business Administration and against the defendants, Thomas Hosko and Constance Hosko a/k/a Constance A. Hosko, in the amount of $ 401,200.89 plus interest from November 15, 1987; and
the Clerk of Court is directed to close this case.
Edwin M. Kosik
United States District Judge