Johnny R. Austad and Dorothy Austad, His Wife v. United States

The United States brought this action to foreclose a mortgage held by the Small Business Administration (SBA) on certain property of the Austad Steel Company, and for a judgment against Johnny and Dorothy Austad personally as unconditional guarantors of the company’s' note. The liability of the company was admitted, but the Austads’ amended answer alleged several affirmative defenses to their liability as guarantors. The trial court, after a hearing, granted the Government’s motion for judgment on the pleadings. The guarantors appeal.

In December, 1958, the Austad Steel Company, acting through defendants as president and secretary-treasurer, executed a note and mortgage on the company’s real property in return for a loan from the SBA. Repayment of the loan was to be made in monthly installments over a ten year period. In addition, as part of the consideration for the loan, the SBA received as security the unconditional guaranty of payment by the individual defendants. The guaranty was executed on a standard SBA form. The provisions of the guaranty contract were, in short, intended to give the SBA flexibility in dealing with the debtor without releasing the guarantors from their…