United States v. H. E. Crain and Ethel E. Crain, Husband and Wife, and Coconino County, Arizona

Harold and Ethel Crain appeal from the district court’s summary judgment finding them liable on their personal guarantee of a Small Business Administration (SBA) loan and foreclosing the mortgage securing that guarantee. We affirm in part, and reverse and remand in part.

I

On January 12, 1968, the SBA loaned $100,000 to the Haining Lumber Company, Inc. Haining provided collateral for the loan. In addition, the loan was personally guaranteed by Harold Crain, then president of Haining, and his wife Ethel Crain, who owned 75% of Haining’s stock. The guarantee was secured by a mortgage on certain real property belonging to the Crains. The guarantee was executed on a standard SBA form, while the mortgage securing the guarantee was on a standard title company form adapted for use in Arizona. The guarantee provided that the SBA could proceed against the guarantors upon default of the principal debtor without pursuing any rights it might have against the debtor.

Subsequent to the loan, Haining was the subject of a reorganization proceeding, in the bankruptcy court. An arrangement was approved whereby Mr. Crain withdrew from the management of Haining. However, the Crains’ guarantee…