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May 13, 1991


Ilana Diamond Rovner, United States District Judge.

The opinion of the court was delivered by: ROVNER



 In this action the United States seeks to enforce defendant Julius Lorince's guarantee of payment upon a promissory note. Pending before the Court are the parties' cross-motions for summary judgment. For the reasons set forth below, the Court denies the government's motion for summary judgment and grants Lorince's cross-motion for summary judgment on the ground that this action was filed beyond the statute of limitations.


 On or about August 15, 1978, the Bremen Bank & Trust Company of Tinley Park, Illinois ("Bremen Bank") made a loan to Villa Marie Restaurant, Inc. ("Villa Marie"). (Amended Complaint para. 2; Answer para. 2.) The Small Business Administration ("SBA") previously had agreed to guarantee 85 percent of this loan on July 5, 1978. (Lorince 12(e) para. 1 and Ex. A.) In exchange for the loan, Villa Marie executed a promissory note (the "Note") dated August 1, 1978 in the amount of $ 375,000, payable to Bremen Bank. (Amended Complaint para. 2 and Ex. A; Answer para. 2; Lorince 12(e) para. 2 and Ex. B.) Peter Poulakis and Kyriakos Poulakis, the principals of Villa Marie, each guaranteed payment of the Note by signing an SBA guarantee form. (Lorince 12(e) para. 3 and Ex.'s C and D.)

 On or about December 4, 1978, Chablis III, Inc. ("Chablis") purchased the assets of Villa Marie. (Lorince 12(e) para. 4.) In connection with the purchase, Bremen Bank required Chablis and its three principals -- Richard L. Hutchison, Lawrence Elkin, and Hazel Jackson -- to guarantee payment of the Note. (Id. and Group Ex. E.) *fn2"

 On or about January 4, 1980, defendant Julius Lorince purchased the stock of Chablis. (Lorince 12(e) para. 5 and Ex. F.) On February 29, 1980, Lorince executed his own guaranty of the Note. (Lorince 12(e) para. 6 and Ex. G.) Lorince also executed a separate, undated agreement to purchase the stock in Chablis owned by Hutchison and Elkin, together with their spouses, Joan Carole Hutchison and Temple Elkin (collectively, the "sellers"). *fn3" (Lorince 12(e) Ex. F.) Pursuant to this agreement, Lorince agreed to indemnify and hold harmless the sellers as to any liability arising out of the Note or the guaranties, including liability to the SBA, Bremen Bank, Hazel and James E. Jackson, or Kyriakos and Peter Poulakis. (Id. Ex. F para. 3.)

 John W. Davis purchased the assets of Chablis from Lorince pursuant to an agreement dated July 26, 1980. (Lorince 12(e) para. 8 and Ex. I.) In connection with this purchase, Davis, individually and as the president of Leonardo al Dente Restaurant, Inc. ("Leonardo al Dente"), executed an agreement dated June 30, 1980 pursuant to which he and Leonardo al Dente "assume[d] and agree[d] to pay the indebtedness evidenced by the . . . Note in accordance with the terms thereof, on which there [was] a present unpaid principal balance in the amount of approximately $ 333,800.00" (Lorince 12(e) para. 7 and Ex. H.) Pursuant to the July 26, 1980 purchase agreement which followed, Davis further agreed to assume the SBA loan made by Bremen Bank (referred to in the agreement as the "SBA loan"), and "to indemnify and save [Chablis] and Julius Lorince, Richard L. Hutchison, Lawrence Elkin and James Jackson, *fn4" harmless from and against any and all liability, costs, damages, expenses, judgments, and claims, including reasonable attorneys' fees, which they or any of them may incur, suffer, or sustain by reason of [Davis'] default in the repayment of the SBA Loan." (Id. at 2.) Davis also agreed to cooperate with Chablis in attempting to have the prior individual guaranties removed from the Loan. (Id.) However, this removal was not made a condition of the purchase (see id.) and, as is evident from the pending suit against Lorince, it never came to pass.

 Leonardo al Dente went out of business on or about August 11, 1981. (Lorince 12(e) para. 9.) Bremen Bank wrote to Lorince on August 18, 1981, notifying him that the restaurant had closed its doors and defaulted on the Note and demanding that Lorince perform on his personal guarantee. (Lorince 12(e) para. 9 and Ex. J.) The letter indicated that a principal balance of $ 329,788.17 remained outstanding on the Note. (Id. Ex. J.)

 Lorince has not made any payment upon the Note. (Amended Complaint para. 7; Answer para. 7.) The records of Bremen Bank indicate that the last payment made upon the Note was received on August 21, 1981. (Lorince 12(e) para. 10 and Ex. K, Attachments.)

 On November 19, 1981, the SBA notified Bremen Bank that it would purchase the 85 percent of the loan which it had guaranteed. (Lorince 12(e) para. 13 and Ex. M.) On April 14, 1982, the SBA wrote to Lorince informing him that the maturity of the Note had been accelerated, and that the entire balance of principal and interest was due and payable. (Lorince 12(e) para. 14 and Ex. N.) The letter also notified Lorince that the SBA would conduct a public auction to liquidate the collateral which secured the loan and apply the proceeds to the outstanding principal and accumulated interest on the Note. (Id.) On April 27, 1982, the equipment and fixtures of Leonardo al Dente were sold at auction, yielding net proceeds of $ 29,757.27. (Lorince 12(e) para. 15 and Ex. O.) J & H Auctioneers & Liquidators, Inc. ("J & H"), which conducted the auction, wrote a check to the SBA for the amount of the net proceeds on May 4, 1982. (Id. and Ex. P.) The SBA received the check on May 5, 1982. (Id.) The SBA received an additional check from J & H in the amount of $ 26.75 on May 13, 1982. (Lorince 12(e) para. 16.) *fn5"

 The government filed this action on May 3, 1988, *fn6" seeking to recover from Lorince an unpaid principal balance of $ 321,640.90 on the Note *fn7" plus interest which has accrued at the rate of 10 percent per annum and which, as of April 26, 1988, totalled $ 192,144.90. (Amended Complaint para. 6.) All other persons liable on the Note have discharged their obligations in bankruptcy. (Lorince 12(e) para. 17.) *fn8"


 The single issue presented by the cross-motions for summary judgment is whether the government's lawsuit is timely. *fn9" The applicable statute of limitations is set forth in 28 U.S.C. § 2415(a), which, in relevant part provides:

. . . Every action for money damages brought by the United States or an officer or agency thereof which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues . . . : Provided, That in the event of later partial payment or written acknowledgment of debt, the right of action shall be deemed to accrue again at the time of each such payment or acknowledgment . . . .

 (Emphasis in original.) The parties do not dispute the fact that the government failed to file this suit within six years after its cause of action first accrued. Thus, the particular question presented in this case is whether there has been either a partial payment or written acknowledgement of debt sufficient to renew the limitations period under § 2415(a).

 A. Initial Accrual of the Cause of Action

 In evaluating the timeliness of this action, the Court must first determine when the limitations period commenced. According to the provisions of § 2415(a), the six-year limitations period begins to run when the cause of action first accrues. The general rule is that a cause of action upon a guarantee of a note accrues not upon a mere default in payment, but only when the creditor notifies the guarantor that the entire debt has been accelerated and demands payment of the entire balance. See, e.g., United States v. Boozer, 732 F. Supp. 20, 22 (N.D.N.Y. 1990); United States v. Lowy, 703 F. Supp. 1040, 1043 (E.D.N.Y. 1989); United States v. Frey, 708 F. Supp. 310, 312 (D. Kan. 1988); United States v. Rollinson, 629 F. Supp. 581, 584 (D.D.C. 1986), aff'd, 275 App. D.C. 345, 866 F.2d 1463 (D.C. Cir.), cert. denied, 493 U.S. 818, 110 S. Ct. 71, 107 L. Ed. 2d 37 (1989). See also United States v. Vanornum, 912 F.2d 1023, 1025 (8th Cir. 1990).

 Lorince asserts that the cause of action initially accrued on August 18, 1981, when Bremen Bank notified Lorince that the Note was in default and demanded that he perform on his guarantee. (Lorince Mem. at 4, 6.) The government does not dispute this contention (see Government Mem. at 2), and the Court finds it to be well taken. The August 18, 1981 letter from Bremen Bank does not expressly mention acceleration of the Note nor does it expressly demand payment of the full amount outstanding. (See Lorince 12(e) Ex. J.) Nonetheless, the letter does indicate that the loan was in default, lists the outstanding balance, and demands that Lorince honor his guaranty. (See id.) Accordingly, the letter was sufficient to mark the initial accrual of the government's cause of action and to trigger the six-year limitations period.

 The SBA sent what might be characterized as a second demand letter to Lorince on April 14, 1982. (Lorince 12(e) para. 14 and Ex. N.) Unlike Bremen Bank's August 18, 1981 letter, the SBA's letter expressly states that the Note had been accelerated and demands payment of the amounts outstanding. (See id. Ex. N.) However, even if the Court were to assume that the cause of action on the Note did not accrue until the date of the SBA's letter, that assumption alone would not render this suit timely. If the limitations period had not commenced until April 14, 1982, it nonetheless would have expired on April 14, 1988, more than two weeks before the government filed this lawsuit. Therefore, unless a subsequent partial payment or written acknowledgement of debt caused the limitations period to run anew, the government's action must be dismissed as untimely.

 B. Partial Payment

 As set forth above, § 2415(a) provides that a partial payment of a debt owed to the United States renews the six-year limitations period. The government contends that the proceeds which the SBA received from the auction of Leonardo al Dente's equipment and fixtures on May 5, 1982 and May 13, 1982 constituted partial payments sufficient to renew the statutory limitations period under § 2415, *fn10" because the equipment and fixtures were collateral and the SBA had a duty to apply the proceeds to the outstanding balance on the Note and thereby reduce the amount for which Lorince was liable. Lorince disagrees on two grounds.

 Lorince argues first that the SBA's liquidation of the collateral and application of the proceeds to the outstanding balance on the Note does not constitute a "payment" within the meaning of § 2415, because although this reduced the amount owed by the debtor (i.e. Davis or Leonardo al Dente), it did not necessarily reduce the amount Lorince owed as guarantor. This argument is not persuasive. The basis for the argument lies in the guaranty itself, which provides:

The obligations of [Lorince] hereunder shall not be released, discharged, or in any way affected, nor shall [Lorince] have any rights or recourse against Lender, by reason of any action Lender may take or omit to take under the foregoing powers.

 (Lorince 12(e) Ex. G.) Lorince argues that under the terms of this provision, the SBA's liquidation of collateral and use of the proceeds to pay down the outstanding balance on the Note would not reduce his own liability on the guaranty. However, this provision simply makes it clear that the powers which the lender enjoys under the guaranty are in fact elective, and that the guarantor cannot escape liability based upon which powers the lender chooses to exercise or not to exercise. See, e.g., Istituto Mobiliare Italiano, S.p.A. v. Motorola, Inc., 689 F. Supp. 812, 817 (N.D. Ill. 1988) (Bua, J.) (secured creditor's failure to act against assets securing loan does not vitiate liability of unconditional guarantor); Rollinson, supra, 629 F. Supp. at 584-86 (seven deferrals of principal payments by bank and SBA did not discharge guarantors from liability). Indeed, Lorince does not contend that the SBA has failed to give him the benefit of the auction proceeds in assessing his liability, and the record in fact suggests the opposite.

 Lorince's second argument holds greater merit. Lorince argues that even if the SBA's application of the auction proceeds did reduce the debt for which he is responsible under the guaranty, this use of the auction proceeds does not qualify as a payment which would renew the statutory limitations period under § 2415(a) because it reflects neither his own acknowledgment of the debt nor his willingness to discharge it.

 The legislative history of § 2415 reflects a congressional intent to codify the common law principle that "the obligation of a debt will continue where a debtor has acknowledged the debt and indicated his willingness to discharge the obligation." See S. Rep. No. 1328, 89th Cong., 2d Sess. 3 (1966), reprinted in 1966 U.S. Code Cong. & Admin. News 2502, 2504. See also United States v. Rollinson, supra, 866 F.2d at 1468; United States v. Blusal Meats, Inc., 817 F.2d 1007, 1010 (2d Cir. 1987); F.D.I.C. v. Petersen, 770 F.2d 141, 144 (10th Cir. 1985) (dissenting opinion); United States v. Glen Falls Ins. Co., 546 F. Supp. 643, 645 (N.D.N.Y. 1982). This principle rests in turn upon the premise that when a debtor has unequivocally acknowledged a preexisting debt and demonstrated an ...

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