UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT,

v.

DON B. HART EQUITY PURE TRUST, DON B. HART AND MARY LOUISE HART, DEFENDANTS-APPELLEES

ROBERT MADDEN HILL, Circuit Judge:

In this appeal the Small Business Administration (SBA) contends that the district court erred in granting summary judgment in favor of Don Hart Equity Pure Trust (Hart Trust) on a claim by the SBA for the payment of a deficiency judgment rendered against Hart Trust. We agree with the SBA and therefore reverse the court’s granting of summary judgment in favor of Hart Trust.

I.

The facts in this case were stipulated to by both parties. Don B. Hart and Mary Louise Hart are farmers in Hansford County, Texas. Because of financial difficulties, on August 28, 1978, the Harts, through Hart Trust, sought and obtained a loan from the SBA. Hart Trust executed a promissory note in the amount of $157,400, payable to the SBA. That same day the Harts personally guaranteed the note, with the SBA obtaining a lien and an undivided interest in two properties owned by the Harts.

The loan called for repayment in annual installments of $18,452, due each January¹⁵ from 1979 through 1988. Hart Trust made its first installment payment on January¹⁵, 1979. It could not make the second payment on January¹⁵, 1980, but the SBA agreed to defer the payment until July¹⁵, 1980. When Hart Trust could not make that payment, the 1980 installment was deferred a second and final time until November¹⁵,1980. Hart Trust never paid this or any of the subsequent installments.

After Hart Trust failed to make the second installment payment, the SBA declared the note in default and accelerated the note so that the entire principal became due and payable. On September 7, 1982, the properties securing the note were sold at a foreclosure sale, and the proceeds were applied to Hart Trust’s debt under the note. After the sale, Hart Trust owed an unpaid principal balance of $55,261.64. The SBA sought payment of this amount from the Harts and then instituted this action against them when the Harts refused to pay. During the service of the loan, the SBA did not at any time provide Hart Trust or the Harts with a written notice of the provisions for deferral and loan payment moratoriums found in 13 C.F.R. § 131.

After consideration of these facts, the district court concluded that SBA borrowers have a legal entitlement to loan deferral consideration, and that Hart Trust was denied that consideration without procedural due process. In reaching this conclusion, the court relied on cases interpreting deferral procedures used by the Farmers Home Administration (FmHA). The court noted that the FmHA cases were not binding authority, but because of the parallels between the language and purposes of the FmHA and SBA loan program statutes, the court felt justified in relying upon the FmHA cases when considering due process requirements in the SBA loan deferral program. The court concluded that the SBA should be held to the same due process standards that have been applied to the FmHA. In examining FmHA cases, the court adopted the rule expressed in Allison v. Black, 723 F. 2d 631, 634 (8th Cir.1983):

The requirement of a request by the borrower prior to consideration for section 1981a relief presupposes that the borrower has knowledge of the availability of such relief. Notice to the borrower is therefore indispensable. In like manner, the requirement of a showing of prima facie eligibility is necessarily premised upon the expectation that some procedure will be provided under which the borrower may make the requisite showing. Thus, the rudimentary elements of adequate notice and an opportunity to be heard are embodied in the language of section 1981a.

Based on this language, the court held that Hart Trust should have received written notice of the deferral provisions, and that any constructive notice received by reason of obtaining deferrals was not sufficient. The court also concluded that even if sufficient notice was given, Hart Trust did not have an adequate opportunity to be heard, and thus the procedure used was still infirm.

The district court also was concerned with the lack of substantive standards by which a borrower’s entitlement to deferral relief could be measured. The court criticized the program because the decision to extend deferral relief to a borrower was left to the discretion of the individual SBA loan officer. Thus, the court concluded that there was no safeguard to insure consistent administration of the loan deferral program.

Based on these factors, the district court concluded that Hart Trust failed to receive due process under the provisions of the Small Business Act because [it was] not afforded a reasonable opportunity for meaningful administrative review of the decisions made by the local loan servicing officer. Meaningful review requires as a minimum the promulgation of standards to be used in measuring deferral rights under the statute, personal notice to borrowers of the availability of and the standards governing deferral, and finally, personal notice of the proper procedure for appealing the loan servicing officer’s decision.

For these reasons, the court granted summary judgment in favor of Hart Trust.1

The SBA now appeals, arguing that (1) this circuit’s unpublished opinion, United States v. Parr, 793 F. 2d 1288 (5th Cir.), cert. denied, — U.S.-, 107 S.Ct. 320, 93 L.Ed.2d 293 (1986), controls and requires reversal; (2) that due process in the SBA loan program context does not require personal notice of the availability of deferral relief and a meaningful opportunity to be heard; (3) that the FmHA line of cases, and the standards developed in those cases, are not applicable to the SBA; (4) that the SBA does not administer its deferral program in an ad hoc, discretionary, or inconsistent manner; (5) that the district court erred in giving probative value to the terms of the settlement agreement adopted in Stone; and (6) that the court erred in holding that the SBA was not entitled to a deficiency judgment. We address these contentions below.

II.

First, we find that Parr controls the first three issues.* Under Parr, Hart Trust does not have the right to receive actual written notice of the deferral program and an opportunity to be heard in order for the SBA to have complied with procedural due process standards. Parr also prevents Hart Trust from relying upon FmHA cases as support for that position.

In Parr the borrowers were farmers in Frio County, Texas, and were unable to maintain their obligations under the SBA Disaster Loan Program (the same program involved in the instant case). The Parrs took out two loans with the SBA. The payments on the first loan were deferred three times for a total of¹⁵ months, and the payments on the second loan were deferred twice for a total of 18 months. Eventually the SBA decided to accelerate the loans and place the Parrs in default. The Parrs never tendered a single payment on either of the two loans.

The Parrs argued that (1) the United States had an obligation to continue to extend credit to them because the SBA assured them that their loan obligations would be deferred if they could not make their payments; and (2) that the United States could not accelerate their loans without giving them notice and an opportunity to be heard.

This court found neither argument to be persuasive. As to the Parr’s claim for procedural due process, the court held that

people are charged with knowledge of the contents of federal regulations, just as they are charged with knowledge of statutory law. See Federal Crop Insurance Co. v. Merrill, 332 U.S. 380, 384-85, 68 S.Ct. 1, 92 L.Ed. 10 (1947). Thus, officers of the United States were not responsible for informing the Parrs of any right to loan deferrals before acceleration.

As for the Parrs’ claim that they did not receive notice, the court found that

even if the United States did have an obligation to inform the Parrs of the availability of deferrals, the Parrs were so informed. In fact, the Parrs received three deferrals on the first loan and two deferrals on the second. Finally, the court dismissed the Parrs’ claim that the government had any duty to continue to make loans to the Parrs, noting that no such obligation was contained in the written promissory notes signed by the Parrs.

The facts of Parr correspond almost exactly with the facts of the instant appeal. In both cases, after having received deferrals, the borrowers were still unable to pay back the loans. The SBA eventually declared the loans to be in default and foreclosed upon the property. In both cases the borrowers argued that due process required that they receive actual notice of the deferral program and an opportunity to be heard on the issue of deferrals. In Parr we rejected that claim, and, therefore, we must follow that precedent and also reject such a contention in the present case.

Hart Trust attempts to minimize Parr’s impact through three arguments. First, it contends that Parr has no precedential value. However, there is no merit to this assertion. Although Parr is unpublished, it is binding precedent. 5th Cir.R. 47.5.3. Moreover, even if we were to disagree with the conclusion reached in Parr, we cannot overrule another Fifth Circuit panel absent an overriding Supreme Court decision or a change in statutory law. Girard v. Drexel Burnham Lambert, Inc., 805 F. 2d 607, 610 (5th Cir.1986). Thus, we are bound by Parr. Because Parr is binding precedent, we are not at liberty to consider the potential applicability of the FmHA line of authority.

The second argument made by Hart Trust, which is related to the first, is that this court erred in the holding in Parr that the “SBA has no affirmative obligation to permit its borrowers to exhaust loan options as condition precedent to bringing collection actions against them.” As we stated above, this panel is bound by the Parr holding that the SBA has no such obligation.

Finally, Hart Trust attempts to distinguish Parr factually by asserting that, unlike the Parrs, Hart Trust did not receive actual deferrals. Instead, appellee argues that it received “informal extensions which provided them no loan servicing assistance.” We do not find any support that the alleged “informal extensions” were not deferrals. The relevant deferral provisions are contained in 13 C.F.R. §§ 131.2 and 131.3. Section 131.2 provides: “ ‘Deferment’ means the procedure whereby a lender (participant or SBA) suspends a borrower’s obligation to make payments on a loan for a stated period.” Section 131.3(b) provides: “When SBA has decided to suspend payment on a direct ... loan, a deferment will be approved under administrative procedures, and payment by borrower will not be required for a stated time period.” In the present case, we believe the “informal extensions” were deferrals. Hart Trust had its payment obligations suspended for a stated period of time. We find no merit to Hart Trust’s attempted distinction.2

In sum, we hold that we are bound by Parr to conclude that due process does not require personal written notice of the availability of deferral relief and an opportunity to be heard on that issue. Also, our reliance on Parr precludes the ability of this court to find such obligations based upon FmHA loan deferral cases.

III.

The next issue we must consider is whether the SBA administers its deferral program in a discretionary, inconsistent, and ad hoc manner. Regarding this issue the district court held:

In addition to the lack of procedural safeguards, this Court is concerned with the apparent lack of substantive standards whereby a borrower’s entitlement to deferral relief can be measured. While the statute itself provides some general guidance for applying the suspension provisions of the statute, the Ad ministrator has failed to generate uniform criteria to aid the various SBA offices in the exercise of the discretion granted by the statute. In essence, the decision to extend deferral relief to a given borrower is left to the unguided inclinations of the individual SBA loan servicing officer. Thus, the SBA provides no safeguards to insure the consistent administration of the loan deferral relief provisions, [footnotes omitted].

In Morton v. Ruiz, 415 U.S. 199, 94 S.Ct. 1055 [39 L.Ed.2d 270] (1974), the Supreme Court stated that

The power of an administrative agency to administer a Congressionally created and funded program necessarily requires the formulation of policy and the making of rules to fill any gap left, implicitly or explicitly, by Congress____ No matter how rational or consistent with Congressional intent a particular decision might be, the determination of eligibility cannot be made on an ad hoc basis by the dispenser of the funds.

415 U.S. at 231 [94 S.Ct. at 1072]. The present record reflects exactly that. After several informal extensions were granted pro forma at the request of the borrower, the SBA reversed its course, declined to grant any further extension, and proceeded to accelerate defendants’ note without any apparent evaluation of defendants’ situation in light of the deferral provisions of the statute. Such a course is unacceptable given the expressed intention of Congress to make deferral relief available to SBA borrowers when confronted with the circumstances described in the statute.

First, we note that the SBA deferral program is designed to be discretionary. The statutory framework for deferral provides:

(2) The Administration may undertake or suspend for a period of not to exceed 5 years any small business concern’s obligation under this subsection only if—

(A) without such undertaking or suspension of the obligation, the small business concern would, in the sole discretion of the Administration, become insolvent or remain insolvent;

(B) with the undertaking or suspension of the obligation, the small business concern would, in the sole discretion of the Administration, become or remain a viable small business entity; and

(C) the small business concern executes an agreement in writing satisfactory to the Administration as provided by paragraph (4).

The Senate bill basically gives SBA the same authority [as that of the House bill] except that it would be discretionary rather than mandatory to grant the moratorium. The Senate bill also limits eligibility to borrowers who are still viable prior to the granting of the suspension and authorizes the SBA to require the borrower to take such action as is appropriate to assure that the rights and interests of the lender will be safeguarded.

The conference substitute adopts the Senate provision but extends eligibility to small businesses which have already become insolvent providing that with the moratorium the small business could again become a viable entity.

(emphasis added). H.R.Conf.Rep. No. 95-535, 95th Cong., 1st Sess., reprinted in 1977 U.S.Code Cong. & Ad.News 821, 843, 848.

The district court, however, was concerned that while the decision to extend a deferral may be discretionary, there are not any uniform criteria to aid the various SBA offices in the exercise of its discretion. Thus, the decision of whether to extend deferral relief to a borrower is left to the unguided inclinations of the individual SBA officer, giving rise to potential inconsistent results. We disagree. While there is a certain degree of unguided discretion, that discretion was purposefully added to the deferral program. Moreover, the SBA is not completely unguided in its administration of the program. The statute does provide the parameters of when the SBA may defer repayment of a loan. It may do so only if (1) without such suspension of the obligation the business would become insolvent or remain insolvent, (2) with such suspension the business would become or remain a viable business, and (3) the business executes a repayment agreement.¹⁵ U.S.C. § 634(e)(2). Only when these three criteria are met is the business entitled to deferment, and even then at the discretion of the SBA. Thus, we do not believe that the SBA is left to its unguided inclinations in deciding when deferral is proper.3

Finally, the district court was concerned that the deferral program in the instant case was implemented in an ad hoc manner, without any evaluation of Hart Trust’s situation. The facts of this case belie such a contention. In January 1979 Hart Trust requested a 90-day extension for making the January 1979 payment. This request was granted, and even then payment was not made until November. In April 1980 Hart Trust requested a deferral for the second payment that was due in January 1980. This payment was deferred until July 1980. Hart Trust then requested a deferral until November 1980, which was also granted. This payment, however, was never made.

In May 1981 the SBA sent Hart Trust a collection letter requesting that the loan be brought up to date or that other arrangements be made. In June 1981 the SBA demanded payment of the loan. Hart Trust responded in July 1981, requesting that the SBA delay taking any action pending its obtaining another loan that would be used to pay the SBA. Still, no payment was made. In December 1981 the SBA made another demand for payment; payment was not made. In April 1982 the SBA contacted a representative of Hart Trust regarding the loan and agreed to delay taking any liquidation action after being assured that payment would soon be made. It was not.

Finally, after being in default over two years, on May 10, 1982, the SBA accelerated the loan. The Hart’s property securing the loan was sold on September 7,1982. Then, in November 1982 the SBA wrote the Hart’s demanding payment of the balance of the loan that was not satisfied by the sale of the property. In this letter, the SBA still offered to accommodate the Hart’s if they were still having financial difficulties.

These facts illustrate that the SBA did not administer Hart Trust’s loan in an ad hoc manner without any evaluation of its financial situation. On the contrary, the SBA was patient and accommodating, and it complied with its rules and regulations. The SBA gave Hart Trust more than an adequate opportunity to try to work out a repayment plan. We find no merit to this claim.

IV.

The SBA next contends that the district court erred in giving probative value to the terms of the settlement agreement adopted in Stone. We believe that the SBA has incorrectly interpreted the court’s discussion of Stone. We do not think that the court relied on Stone for its holding; rather, the court merely noted that the “SBA has already implemented a program in Georgia pursuant to a settlement entered in the case of Stone v. Cardenas ... which would go a long way towards satisfying the procedural defects noted by the Court in this opinion.” (footnote omitted). We do not read this statement as one indicating a reliance by the court on Stone for its holding. Instead, the court is merely suggesting a solution to the problems it identi fied. Therefore, we do not address the SBA’s argument of whether the district court erred in giving probative value to Stone. Instead, we dismiss the discussion relating to Stone as dicta.

V.

The SBA’s final argument is that the district court erred in not granting summary judgment in its favor, holding that it was entitled to a deficiency judgment. We agree. In this case, both parties agreed to submit the case for summary resolution based on the stipulated facts and trial briefs. Since we hold that the district court erred in granting summary judgment in favor of Hart Trust, judgment must now be entered in favor of the SBA. VI.

For the foregoing reasons, we REVERSE the judgment of the district court and REMAND the case to the court to enter judgment in favor of the SBA. APPENDIX

UNITED STATES OF AMERICA, Plaintiff-Appellee,

versus

BRUCE EDWARD PARR and GRACE M. PARR, Defendants-Appellants.

No. 85-1424

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT.

June 24, 1986