Contracts I, Pages 39–45

United States v. Meadors

United States Court of Appeals, 7th Circuit, 1985

Facts:

M.J.D., Inc. applied for a $281,000 loan from Bargersville State Bank to pay off debts and provide more capital for their Indiana business. The bank approved the load subject to a guaranty by the SBA. The SBA approved the request for a 56% guaranty, on the condition that the principals—Mr. Meadors, Mr. Judd, and Mr. and Mrs. Ducote—sign the guaranty. These four, in addition to Judd's wife, listed themselves as possible guarantors, and the SBA chose to have the original four sign the required guaranty. Mr. Meadors married defendant two and a half weeks beforehand. Although the SBA did not request but these four signatures, Mrs. Meadors and Mrs. Judd signed the guaranty form with their husbands anyway. MJD then defaulted on its loan, and the bank asked the SBA to take over the guaranteed portion of the loan. MJD turned over the collateral securing its loan, which was then sold. The SBA then filed a motion to collect the rest from the six guarantors, including defendant Mrs. Meadors.

Procedural History:

District court granted summary judgment to the Small Business Administration to collect from defendant based off Indiana law, finding that the Equal Credit Opportunity Act did not protect her from liability, she had waived certain protections by signing the guaranty, and that no independent consideration was necessary for her signature as a guarantor.

Issue:

Is someone who signs a form without being asked liable for the contract?

Defendant's Argument:

Defendant received no consideration for her signature because she was a volunteer afterwards and did not negotiate in the terms set.

Rule:

Consideration must be bargained for by each party. It must given and accepted as the motive or inducement of the promise. The promise must be made and accepted as the conventional motive or inducement for furnishing the consideration.

Reasoning:

The plaintiff did not bargain for the agreement. She didn't sign it to induce the SBA's promise and the SBA did not motivate her to sign it.

Holding:

No, no contract is formed if someone signs a form without being asked to. Reversed and remanded.

Takeaway:

Must have reciprocal inducement.

Note:

Federal law has authority over the United States' rights from federal programs. If no federal rule exists, they may take the rule from state law when it's based off the UCC and without conflict.

Brave Browser – Ad-free browsing