Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 77-C-1069 -- Thomas R. McMillen, Judge.
Before Swygert, Pell and Bauer, Circuit Judges.
In this case, the Union National Bank of Chicago seeks to recover $211,726.86 from the Small Business Administration under a loan guaranty agreement. The district court found that the Bank had failed to perform a condition precedent to its right to demand purchase by the SBA of the guaranteed loan, and that the SBA had not waived the condition. For the following reasons, we affirm.
At trial, the parties stipulated to the following facts. On March 6, 1973, the Union National Bank of Chicago and the Small Business Administration executed a Loan Guaranty Agreement which provided in part:
"2. Approval of Guaranty . . . An approved loan will not be covered by this agreement until Lender shall have paid the guaranty fee for said loan as provided in paragraph 5 of this agreement.
5. Guaranty Fee. Within 5 days of the first disbursement on account of each loan, Lender shall pay SBA a one-time guaranty fee amounting to one percent of the total amount guaranteed by SBA . . ."
Shortly thereafter, the SBA issued an Authorization approving the Bank's request for a guaranty of a $250,000 loan to R. L. Roth & Associates, Ltd. and ROK Construction Company. The Authorization stated that it was subject to the terms of the March 6, 1973 Guaranty Agreement, and a cover letter stated that the guaranty fee had to be paid at the time of the initial disbursement. On July 2, 1973, the Bank notified the SBA that it had made a full disbursement of the loan to R. L. Roth and Associates. The SBA subsequently acknowledged receipt of the notification, and requested copies of certain documents, including the promissory note.
Between June 14, 1973 and August 11, 1976, the Bank and the SBA exchanged several items of correspondence on the Roth loan. In none of this correspondence was any mention made by either party of the procedure for paying the guaranty fee or the consequences of delinquent payment. Finally, on January 31, 1975, the Bank mailed to the SBA a check for $2,250.00 as full payment of the required fee. The check was received by the SBA on February 3, 1975, and was routinely processed by the SBA clerical personnel. The SBA has retained the fee.
As of February 3, 1975, the date the fee was received, R. L. Roth & Associates, Inc. had failed to make timely payments of principal and interest due under the terms of its note. On July 12, 1976, the Bank made a written demand on the SBA for purchase of the guaranteed portion of the loan. The Bank was subsequently advised by SBA personnel that the guaranty had been processed for repayment and that payment would be forthcoming.
However, on January 31, 1977, the Chief of the Accounting Operations Division of the SBA issued a memorandum which stated that the SBA could not honor the Bank's demand since the Bank had not made a timely payment of the guaranty fee. The position taken in this memorandum was based on a March 13, 1975 opinion of the Comptroller General holding that the SBA could not purchase guaranteed loans if the lender failed to pay the guaranty fee before the loan went into default or before the lender had reason to believe that default was imminent. After learning that the SBA would not honor its demand for payment, the Bank filed suit to recover the guaranteed portion of the loan.
Our review of the district court's decision must begin with an analysis of Paragraphs 2 and 5 of the Loan Guaranty Agreement:
"2. Approval of Guaranty . . . An approved loan will not be covered by this agreement until Lender shall have paid the guaranty fee for said loan as ...