UNITED STATES OF AMERICA, Plaintiff-Appellee, v. STUMP HOME SPECIALTIES MANUFACTURING, INCORPORATED, et al., Defendants-Appellants, 905 F.2d 1117

Summary

Appellant guarantors applied for a loan from a bank. The guarantors preferred a fixed rate and the Small Business Administration (SBA) approved a rate of 9.5 percent. However, the bank's loan committee approved only a floating rate of 1.5 percent over the bank's prime rate. With the SBA having approved a fixed-interest loan and the bank's loan committee a variable-interest loan, the loan officer took the unusual step of preparing two promissory notes for the guarantors to sign, one specifying the fixed rate of 9.5 percent, the other the variable rate of 1.5 percent above the bank's prime. All seven guarantors signed an SBA loan agreement that allowed the bank to change the rate of interest but not the principal. The loan was later modified to base the rate of interest on the prime rate in New York, and only the two principal guarantors signed this instrument. When the interest went to 16.5 percent, the guarantors defaulted. In affirming the district court, which awarded judgment to the...