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UNITED STATES v. ROLLINSON

February 28, 1986

UNITED STATES OF AMERICA, Plaintiff,
v.
MARK ROLLINSON, et al., Defendants



The opinion of the court was delivered by: GREEN

MEMORANDUM OPINION AND ORDER

 JOYCE HENS GREEN, U.S.D.J.:

 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.

 I. Background

 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. *fn1" 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.

 II. Analysis

 A. The Statute of Limitations

 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. ยง 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 alternately, on May 12, 1978, the date the Bank assigned the note to the SBA. The Court cannot agree.

 Defendants are correct in stating that under section 2415(a), the statute begins to run "when the claim first could be sued upon, rather than within six years of when the government acquired the claim." United States v. Cardinal, 452 F. Supp. 542, 545 (D. Vt. 1978). Relying on a series of cases involving federally insured student loans, defendants contend that suit can be brought on a promissory note, and thus a right of action accrues, when the borrower fails to make timely payments. Those cases are inapposite, however, because the statute creating the student loans at issue expressly provided that "default" occurred when the borrower was in arrears in payments 120 days after he or she was obligated to commence repayments. See United States v. Lucas, 516 F. Supp. 934, 935 n.3 (E.D. Tex. 1981), United States v. DeGusta, 512 F. Supp. 1299, 1301 (E.D. Cal. 1981). In those cases, therefore, the borrower's default could be ascertained with mathematical certainty. The promissory note at issue here, by contrast, gives the holder of the note the authority to determine when the debtor is in default. It provides that the "holder is authorized to declare all or any part of the indebtedness immediately due and payable upon the happening of any of the following events: (1) Failure to pay any part of the indebtedness when due . . . ." Plaintiff's Complaint, Exhibit A. It is well settled that

 
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 . . . .

 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) (SBA's cause of action accrued when it exercised its option under acceleration clause and statute of limitations began to run on that date); Nyhus v. Travel Management Corp., 151 U.S. App. D.C. 269, 466 F.2d 440, 453 (D.C. Cir. 1972) (where contract envisions demand, statute of limitations set in motion only by such demand). 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 ...


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