## Facts

- M.J.D., Inc. sought a $281,000 loan from a bank, conditioned on an SBA guaranty.
- The SBA approved a 56% guaranty on the condition that four specified individuals sign an SBA guaranty form: three business principals and one principal’s wife.
- About two and a half weeks before closing, one principal, Melton Meadors, married Betty Jo Meadors.
- At closing, the principals and their wives attended; the SBA guaranty form provided signature lines only for the four required guarantors, and no SBA representative attended to request additional signatures.
- Despite not being required, all six attendees, including Betty Meadors, signed the guaranty form.
- Neither the SBA nor the bank required Betty Meadors’s signature as a condition of disbursing loan proceeds, and there was no evidence the SBA knew of or relied on her signature in agreeing to guarantee the loan.
- After default, the SBA took over the guaranteed portion, liquidated collateral, and sued to recover a deficiency from the guarantors, including Betty Meadors.
- Betty Meadors asserted defenses including lack of consideration, statutory defenses related to credit discrimination, and impairment of collateral.

## Issues

1. Whether Betty Meadors’s guaranty obligation was enforceable when her signature was not requested, required, or relied upon as part of the loan-guaranty bargain.
2. What law governs the United States’ rights in litigation arising from an SBA-guaranteed loan, and whether state contract rules may supply the rule of decision.
3. Whether statutory credit-discrimination and waiver arguments affected liability when the guaranty was allegedly unsupported by consideration.
4. Whether the district court correctly calculated interest on the indebtedness.

## Decision

- The court applied federal law governing federal credit programs and used Indiana contract law as the borrowed rule for the consideration analysis.
- The court held Betty Meadors’s guaranty was unsupported by consideration because her signature was not bargained for and did not induce any promise by the SBA or the bank.
- The court reversed the grant of summary judgment against Betty Meadors and remanded for further proceedings.
- The court indicated the district court had erred in its interest calculation and directed reassessment on remand as appropriate.

## Legal Principles

- Rights and obligations arising from the United States’ participation in federal lending and guaranty programs are governed by federal law.
- When no controlling federal rule directly resolves a contract question, federal courts may adopt compatible state-law principles as federal common law.
- A guaranty executed contemporaneously with the underlying transaction is not enforceable against a signer who was not part of the bargained-for exchange; consideration requires reciprocal inducement.
- A person who signs a guaranty as a volunteer, without the creditor’s request, requirement, knowledge, or reliance, does not form an enforceable guaranty contract.
- Summary judgment is improper where undisputed facts show the asserted guaranty lacks bargained-for consideration as a matter of law.

## Conclusion

The Seventh Circuit held that an unsolicited spousal signature on an SBA guaranty form, not demanded or relied upon by the creditor or the SBA, lacked bargained-for consideration and was unenforceable; it reversed summary judgment against the spouse and remanded, also instructing reconsideration of interest calculations as needed.


United States v. Meadors, 753 F.2d 590 (7th Cir. 1985)