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Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 

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Fll1ED 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

United States Court of Appeals 

T•~nth Circuit 

MAR 2 7198 

ROBERT L. H~CKER 

Clerk 

UNITED STATES OF AMERICA, 

Plaintiff-Appellant/ 

Cross-Appellee, 

v. 

FEDERAL HOME CORPORATION, 

LOUIS DALLAFIOR, and ANN DALLAFIOR, 

and 

Defendants-Appel lees/ 

Cross-Appellants, 

CHESTER W. BARTLETT, et al., 

Defendants. 

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ORDER AND JUDGMENT* 

Before LOGAN, SETH and TACHA, Circuit Judges. 

Nos. 87-2191 

& 87-2227 

(D.C. No. 84-A-1752) 

(D. Colorado) 

In 1980, the Federal Home Corporation (Federal), a builder of 

modular housing, applied for a $300,000 loan from the Economic 

Development Administration of the United States Commerce 

Department (EDA). Louis and Ann Dallafior (defendants), who were 

stockholders in Federal, executed a personal guaranty to secure 

part of the loan; the guaranty expressly limited defendants' 

liability to $78,000. See Brief of Appellant at 33 (Pl. exh. 2). 

* This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

Appellate Case: 87-2191 Document: 010110034997 Date Filed: 03/27/1989 Page: 1 
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Later, in the course of EDA's reprocessing of the loan application 

as a result of a different guarantor's withdrawal, defendants 

executed a deed of trust covering seven parcels of land as 

security for the loan. The document did not reference the earlier 

guaranty nor did it expressly limit defendants' liability to 

$78,000. See id. at 36-38 (Pl. exh. 4). The promissory note, 

executed by Federal the same day defendants signed the deed of 

trust, stated that it was secured by "a mortgage on land and 

buildings, liens on accounts receivable, inventories, machinery, 

equipment, furniture, and fixtures. Personal guarantees by 

Grant w. Dissette, Dorris Dissette, Louis Dallafior, Ann 

Dallafior." Id. at 30 (Pl. exh. 1). Federal subsequently 

defaulted on its note and EDA now attempts to execute on 

defendants' deed of trust and personal guaranty. 

The issues on appeal are whether defendants' liability to the 

EDA is limited to the $78,000 stated in their personal guaranty or 

extends to the whole value of the property set out in the deed of 

trust plus the amount of the personal guaranty, if necessary to 

pay off the loan to Federal, and whether EDA is estopped to 

foreclose on defendants' home. 1 The district court concluded by 

implication that the various documents were ambiguous as to 

1 EDA originally raised two other issues in its brief. At oral 

argument, it conceded that defendants are entitled to a credit of 

$35,721.28 against their liability, that amount being the 

difference between the amount paid by EDA at the trustee's sale of 

a certain tract of defendants' pledged property and the property's 

value, and that rents received by EDA after it took possession of 

defendants' pledged properties should be credited against 

defendants' liability to EDA. 

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defendants' total liability, and held that their liability was 

limited to $78,000. 

Whether a contract is ambiguous is a question of law, but 

once a contract correctly is found to be ambiguous, the district 

court's interpretation, aided by the testimony it heard, is 

subject to a clearly erroneous standard of review. See Teton 

Exploration Drilling, Inc. v. Bokum Resources Corp., 818 F.2d 

1521, 1526 (10th Cir. 1987); Amoco Prod. Co. v. Western Slope Gas 

Co., 754 F.2d 303, 308-09 (10th Cir. 1985). 

We agree that, read together, the contracts are ambiguous. 

EDA admits that "[p]romissory notes, deeds of trust and guaranties 

are commonly executed in conjunction with each other and should be 

construed as a single transaction." Brief of Appellant at 12. 

Taking the guaranty, note, and deed of trust together creates an 

ambiguity whether defendants' liability is limited to $78,000, as 

expressly stated in the guaranty, or adds the full value of the 

property set out for the deed of trust to the total of the 

personal guaranty, as EDA contends. In such a case, the district 

court's determination as to the documents' meaning must be upheld 

unless clearly erroneous. 

EDA points to evidence that it would not have reprocessed and 

granted the loan if defendants had not executed the deed of trust. 

See II R. 118-20. Yet, the language in the note, quoted above, 

explicitly references only defendants' personal guaranty. The 

Amendment to Loan Agreement, executed several days before 

defendants signed the deed of trust, did make reference to the 

deed, see Reply Brief of Appellants, app. at 8, but that document 

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Appellate Case: 87-2191 Document: 010110034997 Date Filed: 03/27/1989 Page: 3 
was not signed or acknowledged by defendants. In addition, at the 

time the deed of trust was executed, no party made any effort to 

disclaim or void the personal guaranty, or state that the earlier, 

explicit limit on defendants' liability was no longer in effect. 

The testimony upon which EDA relies, that defendants were required 

to pledge their property before EDA would make the loan, see II R. 

54-55, does not necessarily imply that the pledge negated or 

rescinded defendants' earlier, express limitation on their 

liability. The land simply could have secured the $78,000 that 

was guaranteed. Indeed, one of the defendants testified that at 

the time he signed the deed of trust, he understood his liability 

still was limited to $78,000. II R. 71-72. Thus, we cannot say 

that the district court's interpretation of the guaranty and deed 

of trust, limiting defendants' total liability to EDA under those 

documents to $78,000, was clearly erroneous. 

Defendants' argument that EDA is estopped to foreclose on 

their home is without merit. Even if a government agency may be 

estopped by representations of its employees, the district court 

found that neither EDA nor its agents ever told defendants it 

would not foreclose on their home. VI R. 11-12. Defendants point 

only to inapposite statements of an EDA agent in their attempt to 

convince us that the district court's finding was clearly 

erroneous. We hold, however, that the district court acted within 

its equitable discretion in ordering that defendants' home be the 

last of the pledged properties sold. 

The district court's ruling--that defendants' liability is 

limited to $78,000 and should be offset by $35,721.28 as a net 

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equity credit on one tract of property, by rental income received 

by EDA, and by $2,500 as the value of certain other property, 

permitting execution on the Dallafiors' home only as a last 

resort--is AFFIRMED. 

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Entered for the Court 

James K. Logan 

Circuit Judge 

Appellate Case: 87-2191 Document: 010110034997 Date Filed: 03/27/1989 Page: 5