guarantees in the forms of contractual agreements with surety companies whereby the s b a assumes some of the risk associated with issuing bonds for small contractors seeking to progress into a higher realm of business the s b a made an agreement with a c i c in connection with a particular bond and a particular contractor through the surety bond guarantee program a dispute has arisen between the between a c i seeing the s b a in connection with surety bond guarantee that dispute is essentially contractual there guarantee program instead years after a c i s c undertook a risk it would not have undertaken in the absence of this program and after a c i performed its obligations under its bond by making a settlement of a claim against yes v a renee on its undertaking its agreement with a c i c to assume part of that risk it's fair to say that the refusal of the s b a perform was based on a technicality that's because there was no substantive harm to the s b a even was improperly institute which if i follow your honor's question there there there's there's the issue of what happened to the bond itself bond is a commitment by a  and this relates to my point that this is an ex sensually contractual relationship between a c r c and the s b a with respect to this guarantee is that according to and our position is that that the s b a is acted wrongfully and mistakenly well i understand but let's assume that it could be a different case and hypothetically if the if the s had you had gone ahead and agreed to it forcible increased obligation without getting s b a provable would that result in a forfeiture of the entire i have to mention in the context of this question that i recently took a look at very recently thirteen c f r one fifteen point night scene which is the  regulation we're talking about here and there appears to be a new introductory preamble affective right now are this month to that provision which modification because they were not notified in a timely way or things went too fast that the prior obligation sued effect i didn't see that argument it seems as if since you said change i i honestly your honor i just realized the change was pending i have not been tracking this regulation to realize that there was a pending change and i don't know i don't know the answer to that question the see it percentages it was not one that we realized was available to us i was not aware of this though the prior language does not suggest discretionary action on the part of the s have course of contested the interpretation of the regulation by the s b a looking primarily to the meaning of the language concerning what the condition we're talking about the condition that there has to be a particular sequence and you hav words if the regulation were part of the contract guaranty agreement it imposes a condition subsequent that that changes to the bond had to be sequenced with approval by the s b a so th approval preceded the change are the increase in the mail the bond and that the failure of that sequence would be a failure of a condition subsequent which would work a forfeiture of the bond guarantee and did not suggest discretion or that it would simply relate to the approval also relevant on this point is that the s b a did approve the change we're not talking about whether the s b a wants to unwrap the approval of the increase in the bond amount that wouldn't have any any substantive consequence to a c s i see whatsoever because as you pointed out the settlement and the loss on the bond was considerably less than the original amount of the bottom up the increased amount of the bond to suppose that we were to agree with you that part based on the lack of the sufficient power of attorney to mister's work i didn't know that as part of the argument is whether the lack of a power of attorney for functions of power was of attorney involved in this matter and let me clarify the s b a through its procedures requires that when you apply for a bond guarantee they want a power of attorney for that particular agent showing a power up to at least the amount of the request on the surety industry  why assuming that take accepting your argument that the power of attorney it was not sufficient at the time that the increase was approved all i would say there was no power of attorney that's why that's constitute ratification that makes the obligation enforceable well there are three reasons rather first of all you you have to ratify the first well let me just do a different sequence first of all our position as support in the record is that an increase in the amount of the contract even without an increase in the amount on entitles the bombing company to an increase in the premium the second position is that any i know but there was an increase you think the increase was not supportive by either the delivery of an original of the bond or by the power of attorney but there's a number which is a larger number on the that was done in two thousand and two the change in the contract was in two thousand and three that document was created in two thousand and three no issue arose concerning that document till several years later ok ok but i really do want to get an answer to my question implies the acceptance of that check to not constitute ratification notwithstanding any flaws in either the power of attorney are the actual delivery of the original sign luke copy of  the obligation of the third reason is that the premium is paid in anticipation of the issuance of the for one thing the fee has to be paid to the s b a prior to the s b s approval so you've got to pay with your application the delivery of attack is therefore not in the acceptance of a check is therefore not a ratification of any act it's part of art of the processing of an application for the bond or in this case and i seen the check the check was there was some considerable back and forth about the allocation between the the s b a fee that the agent's commission and increased premium but sometime in two thousand and three ye please the court d c i see in contravention of the regulation at issue agreed acquiesced to a mere tiriel change in the barn prior to obtaining that was before the default by the contractor yes your own but prior to that fifteen months prior to that in march of two thousand and three a because of this is a which was imperfectly carried out your honor i understand stand your reluctance in terms of what happened but when we look at the underlying statute not the regulation the statute and that is fifteen u s c section sent six ninety four be printed eat that section state that if there is a prior approval surety which in this case a c i c is a prior approval charity who greasier acquiesced to a material alteration of the bond and it's later clarified as increasing the pardon amount by twenty five percent or fifty thousand dollars then the s b a shall be relieved of all liability all liability and that is under the first farm as well as the original bonded amount an unusual occurrence it doesn't happen every day but when you look at what the s b a did they were unaware that the change had already occurred so that if you go back the march thirty first surety writer and i we'll look keep coming back to it but that's an important document because on in that document it says that the a agrees to the change or approves the change subject to a written change order and f and they put a condition in that right if as a c r i see says it was aware all the time that it had to a approval prior to their agreeing to the change then why didn't they subject that surety writer to the condition pre season that it was subject to prior approval surety actually says nothing about that it says the f e m a the administration shall be relieved of liability in whole or in part within the discretion of the s b a yes and it never says anything about pre approval anywhere in the statute the only thing i think you could even be suggesting what justifies what you're saying is a number for which says if the security has substantially violated the regulations problem gated by the administration that's the only thing it says nothing anywhere in the statute about pre approval or any of that language that you said nothing so unless i'm on to you tell me to look to fifteen u s c six ninety four be perennially right yet your language pre approval is not in there anywhere none of what you said is in there the statute in conjunction with the regulation reading those two together then the s b a is really of all liability  when you talk about the notion of discretion then you look at discretion and if the agency exercised its discretion in terms of relieving itself of all liability then the question becomes is that discretion reasonable and when you look at the facts of this case if discretion was before the agency then it was reasonable there for the agency to ask as they did we start with in march of march thirty first two thousand and three a c agreed to a premium increase after that and on that document it was signed by an agent of a c i see any signed as their attorney  and he testified it testified wrote a statement an affidavit stating that he would not have approved the first drop unless he had been shown a copy of the surety rider increasing the bo that's one of their arguments you know that wasn't the one i was trying to get you to focus on what i was trying to get you to focus on because you said we have to look at whether it was reasonable for the agency to refuse liability in whole because they have the discretion to do it in whole or in part and i was hoping that you would tell me why it's reasonable for them to refuse liability in part in a circumstance where pre approval absolutely wasn't sought but nonetheless was ultimately granted when there was no liability or change in circumstances between that time  writer already existed and i guess my question is so was no liability attached beforehand you would have a very good basis if not only had they already agreed but there were already already liabilities right i mean but here what difference does the knowledge make how does it harm or affect s b a your honor that question is one of what happens in the actual world in terms of what did the s anywhere that would have put them on the hook for the increased amount prior to their approval so why what difference does it make if they weren't aware of the fact that the contractor subjected it self to a higher potential liability the regulations where the regulations states that if there is a material alteration in the bomb then the s t a is relieved of all liability and you read that in conjunction with the statu statute had not been the focus of the argument below so if i missed speeded the statute i was i was wrong and i apologize but the the bottom line is that as of march thirty first two thousand and three s had made ink the man on the bomb then the amount that they would have made a demand on would have than the increase premium of two million a little over two amount that was under the original on that amount that that's a fact but the only reason why the increased funding amount did not come into play was because of the yet it seems to me that what's being requested setting aside that it should remedy as of no seems to go beyond a reasonable interpretation is a stretch if you're honest when you look at what the s b a did the s b a focused on their regulation that regulation is a byproduct if you will of the statute but when you look at the regulation the regulation it's clear that if there is a material alteration which in this case occurred because the farm was increased by more than twenty five percent and more then fifty thousand dollars then the s b a is relieved of all of life and that is the regulation that the s b a used at the time and that is what drove the mr lawlor mehr the director of the s b a small business set aside program to deny the liability because when and i'm going back i have seconds judge moore say somewhat i printed out from west i believe the language you were looking at just a moment ago is indicated as text of the introductory paragraph effective until february twelfth two thousand and fourteen that's the tax that talks about bonds executed on or after february seventeenth two thousand and nine so on i have a printer that shows text of introductory paragraph effective february twelfth twen fourteen which doesn't have a language and so as s b a is relieved of liability in whole or in part within its discretion if any of the circumstances exist but here they say we're not exercising discretion to do part we think whole so you know a i don't see that it states the fact that they could have agreed to do only a partial you know thing doesn't s my colleague acknowledges that that exercise of discretion has to be reasonable and it's hard to imagine how a complete forfeiture of all rights relating to the original band bond and the original guarantee in a situation where the losses was in the original bond and there's and the approval was in fact given could be reasonable but i don't read your grief to be making that argument and we spent a lot of time with mr austin on two arguments one is as good as a wave objection to the increase by agreeing to it ultimately and two should there be a forfeiture only of the additional obligation to the on the larger incremental bond but i don't see you making either of those arguments in your briefs and you're right broader and that's because this language wasn't in front of us at the time and didn't trigger this discussion that we devoted a great deal of time to which is a reasonable discussion nevertheless it was but those legal arguments would have been available to you could have argued that i didn't think you need either of those we may do the flip side argument your honor that if this is a condition subsequent that results from it when it's invoked of complete forfeiture of rights under the guarantee agreement then the condition should be read very stringently against the party invoking the condition and that the party that is the s b a and the party should have a very high standard of a stablish ing  that the condition was in fact violated and then and the condition should be read very narrowly and that our argument was expressed in the argument that it has to be a situation where the surety has acted to create unequivocally an increased liability under the bar prior to the approval ok