Opinion ID: 427030
Heading Depth: 2
Heading Rank: 2

Heading: Estoppel of the SBA

Text: 26 Magnum also argues that it would have offered evidence supporting an estoppel defense based on misrepresentations by SBA officers. Before the parties entered the transaction, an SBA Loan Officer allegedly told Vahlco that the SBA would leave Vahlco's fixed assets unencumbered. 17 Nevertheless, the SBA sought and obtained an assignment of the first note and the deed of trust after the Bank assigned to the SBA the note it had guaranteed. (At the time, the retainage accounts that had secured the $350,000 note had, in the SBA's opinion, become uncollectible because they were tied up in litigation over Vahlco's failure to complete the Houston construction contracts.) 27 At trial the district court denied this defense as a matter of law, informing counsel for Magnum that he could not raise estoppel against the United States under the facts of the case. However, in its memorandum opinion the trial court rejected the estoppel defense on other grounds: that the defense was available only to a party to the SBA-guaranteed loan and therefore not available to Magnum. We conclude that the district court was correct in its initial reasoning and in its result, but that the grounds articulated in its written opinion are faulty. 18 We therefore affirm on the grounds orally given by the district court at trial--that Magnum may not raise estoppel against the United States on these facts. 28 Decisions of the Supreme Court and of this Court make clear that estoppel can rarely be asserted against the government. See, e.g., Schweiker v. Hansen, 450 U.S. 785, 788-89, 101 S.Ct. 1468, 1470-71, 67 L.Ed.2d 685 (1981) (lack of affirmative misconduct bars asserting estoppel defense against government). In the context of SBA-guaranteed loans, this court has recently held that the United States is not bound by actions of its agents that exceed the scope of their authority--specifically, misrepresentations regarding financial instruments to which the SBA is a party. United States v. R. & D. One Stop Records, 661 F.2d 433 (5th Cir.1981). In R. & D., guarantors of an SBA promissory note argued that the SBA officer had told them that despite the language of the guarantee no individual recourse against the guarantors was envisioned and that the SBA was therefore estopped from collecting on the guarantee. This Court looked to the express language of the guarantee alone to determine the obligations of the guarantors and dismissed the estoppel argument on the grounds that the possible misrepresentations by the SBA representative are of no help to the guarantors, since any representation that the express language of the instrument would not be determinative of the guarantors' obligations was beyond the scope of the agent's authority. R. & D., 661 F.2d at 434-35, citing, inter alia, Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947). 29 Taking Magnum's assertions as to the SBA officer's statements as true, all that happened here was that the officer, ignorant of the terms of the contract between Vahlco and the Bank, stated that the SBA would not on its own initiative require fixed assets as security to guarantee the line of credit. However, those assets had already been made security for the line of credit by the terms of the written instruments embodying the contract between the Bank and Vahlco. As successor to the Bank's interest in that transaction, the SBA is entitled to the benefit of the terms the Bank negotiated--regardless of whether an SBA officer may have indicated that the SBA might have consented to other terms in some hypothetical transaction where no future advances clause already created a lien on the property. 30 As the district court found, the language of the instruments unambiguously establishes that the property secures the line of credit. The SBA is as much entitled to that security as the Bank was. There was no error in precluding evidence on Magnum's estoppel defense. 31 Since the defenses on which Vahlco and Magnum sought to offer evidence were as a matter of law not meritorious, defendants' substantial rights were unabridged by any error in prematurely granting a directed verdict. The judgment below is therefore 32 AFFIRMED.