Oldham v. SBA

Case: 19-10644 Document: 64-1 Page: 1 Date Filed: 05/14/2025

United States Court of Appeals

for the Fifth Circuit United States Court of Appeals

____________ Fifth Circuit

FILED

No. 19-10644 May 14, 2025

____________

Lyle W. Cayce

Clerk

Jeanette H. Oldham,

Plaintiff—Appellant,

versus

United States Small Business Administration; First

National Bank of Baird, doing business as First Bank Texas,

Defendants—Appellees.

______________________________

Appeal from the United States District Court

for the Northern District of Texas

USDC No. 1:18-CV-73

______________________________

Before Richman, Southwick, and Oldham, Circuit Judges.

Priscilla Richman: *

Leslie Oldham (Mr. Oldham) applied for a loan from First Bank Texas

(the Bank) guaranteed by the Small Business Administration (SBA). During

negotiations with the Bank, Mr. Oldham received an email from a Bank

representative stating that the “SBA require[d]” a personal guaranty from

his wife, Jeanette Oldham (Mrs. Oldham). Mrs. Oldham claims that the

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*

This opinion is not designated for publication. See 5th Cir. R. 47.5.

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Bank’s requirement that she personally guarantee the loan violated both

applicable federal regulations and the SBA’s Standard Operating Procedures

(SOP). Mrs. Oldham filed suit in Texas state court against the Bank and the

SBA, seeking damages and a declaratory judgment invalidating the personal

guaranty. After removal and an amended complaint, the Bank and the SBA

filed motions to dismiss. The district court granted both. We affirm in part,

reverse and vacate in part, and remand for further proceedings.

I

In 2006, Mr. Oldham applied for an SBA-guaranteed loan from the

Bank to finance his business. Mr. Oldham was the president and the majority

owner of the business; Mrs. Oldham was the secretary. Mrs. Oldham had no

ownership interest in the company. Just days before the loan’s closing date,

the senior vice president of the Bank sent an email to Mr. Oldham. The email

said that both Mr. Oldham and Mrs. Oldham would have to sign the loan

application because the “SBA require[d]” it.

At the signing, the Bank told Mrs. Oldham directly that the “SBA

required her to be a guarantor and to sign a guaranty.” The guaranty stated

that it was “continuing and unconditional,” meaning that it would “not be

limited in time, and [would] incorporate all past, present, and future

obligations [of the] borrower.” According to the agreement, Mrs. Oldham’s

“joint and several liability” would continue to exist “until payment is made

of every obligation of the Borrower now due or hereafter to become due.”

Not long after the signing, the Bank executed an SBA loan-

authorization form. In that form, the Bank stated that Mrs. Oldham’s

personal guaranty was required to satisfy the SBA’s collateral conditions. In

the negotiations leading up to the loan’s closing date, Mr. Oldham had been

unwilling to pledge his ranch property as collateral. Unable to obtain the

necessary assurances from Mr. Oldham, the Bank told Mrs. Oldham that the

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SBA required her personal guaranty. But at the time, Mrs. Oldham was

unemployed, and she had “no income or liquid assets.”

In 2009, the business became insolvent and defaulted on the loan.

The business and the Bank subsequently entered into a restructuring

agreement, which refinanced the debt and allowed for extended payment

terms. In 2012, after the business defaulted on the restructuring agreement,

the Bank sued Mrs. Oldham to collect on her personal guaranty. Mrs.

Oldham responded to the lawsuit by denying liability and claiming that the

guaranty was illegal. The matter remained on the docket until February 2015

when the Bank nonsuited the case. The Bank then sold the debt to the SBA

according to the terms of the SBA’s loan-guarantee program.

In March 2017, the SBA sent Mrs. Oldham a notice letter, which

informed her that the debt on her guaranty was due and that the SBA

intended to offset her Social Security payments if the debt was not paid. The

notice letter stated that Mrs. Oldham could send a letter to the SBA to

dispute the debt. The SBA would then send Mrs. Oldham records related

to the debt and review the validity of the debt. The notice letter did not say

that Mrs. Oldham was required to request a hearing to dispute the debt.

On May 1, 2017, Mrs. Oldham sent a response to the SBA disputing

the validity of the debt. Nine days later, the SBA responded, saying it had

“reviewed” the restructuring agreement and had “determined that [Mrs.

Oldham’s] debt was not satisfied.” In September of that same year, the

Treasury Department began withholding money from Mrs. Oldham’s Social

Security payments to satisfy her alleged debt to the SBA.

In 2018, Mrs. Oldham sued the Bank and the SBA in Texas state

court. After removal, the Bank and the SBA filed motions to dismiss. Both

motions were mooted when Mrs. Oldham filed an amended complaint. The

Bank and the SBA renewed their motions to dismiss not long thereafter. The

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district court granted both motions “[e]ssentially for the reasons argued by”

the defendants. This appeal followed.

II

On appeal, Mrs. Oldham has abandoned her declaratory judgment

action against the Bank. But she continues to press two separate monetary

damage claims against the Bank: (1) fraudulent misrepresentation; and

(2) negligent misrepresentation. The district court dismissed both claims as

barred by the statute of limitations. We review the dismissal de novo. 1

Mrs. Oldham’s fraudulent misrepresentation claim against the Bank

is governed by a four-year statute of limitations. 2 The negligent

misrepresentation claim is governed by a two-year statute of limitations. 3

Under Texas law, the statute of limitations for such claims begins to run at

the time the alleged false statement or misrepresentation is made. 4 Here,

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1

See, e.g., Budhathoki v. Nielsen, 898 F.3d 504, 507 (5th Cir. 2018) (citing Wampler

v. Sw. Bell Tel. Co., 597 F.3d 741, 744 (5th Cir. 2010)).

2

TEX. CIV. PRAC. & REM. CODE ANN. § 16.004(a)(4); see also Shannon v.

Law-Yone, 950 S.W.2d 429, 433 (Tex. App.—Fort Worth 1997, pet. denied).

3

TEX. CIV. PRAC. & REM. CODE Ann. § 16.003(a); see also Woods v. William

M. Mercer, Inc., 769 S.W.2d 515, 516-17 (Tex. 1988); Weaver & Tidwell, L.L.P. v. Guarantee

Co. of N. Am. USA, 427 S.W.3d 559, 565 (Tex. App.—Dallas 2014, pet. denied) (“The

statute of limitations for a negligent misrepresentation cause of action is two years.” (first

citing HECI Expl. Co. v. Neel, 982 S.W.2d 881, 885 (Tex. 1998); and then citing Collective

Asset Partners, LLC v. McDade, 400 S.W.3d 213, 217 (Tex. App.—Dallas 2013, no pet.))).

4

See Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 202 (Tex. 2011)

(“Causes of action accrue and statutes of limitations begin to run when facts come into

existence that authorize a claimant to seek a judicial remedy.” (first citing Provident Life &

Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003); and then citing Johnson &

Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514 (Tex. 1998))); Woods, 769

S.W.2d at 517 (“In an action for fraud, limitations begins to run when the fraud is

perpetrated, or if the fraud is concealed, from the time it is discovered or could have been

discovered by the exercise of reasonable diligence.” (citing Quinn v. Press, 140 S.W.2d 438,

4

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both of Mrs. Oldham’s claims are based on the Bank’s 2006 statement that

the SBA required her to personally guarantee the loan for her husband’s

business. Therefore, the statute of limitations for the fraudulent

misrepresentation and negligent misrepresentation claims based on this

statement would have expired in 2010 and 2008 respectively. Mrs. Oldham

did not bring this suit until 2018, well after the statute of limitations had

expired.

Mrs. Oldham argues that her suit is nonetheless timely because

fraudulent concealment and the discovery rule tolled the statute of

limitations for both claims. Fraudulent concealment and the discovery rule

delay accrual until the date an alleged injury could reasonably have been

discovered with due diligence. 5 However, due diligence requires potential

plaintiffs to “make themselves aware of pertinent information available in the

public record.” 6

Here, Mrs. Oldham frames her alleged injury as a violation of federal

regulations and the SOP. Both sources are public information. Mrs. Oldham

should have availed herself of both in 2006 at the time she signed her

guaranty. She should have also availed herself of this information in 2012,

when the Bank first sued to enforce the guaranty. In fact, Mrs. Oldham

answered the lawsuit in 2012 by claiming that the guaranty was illegal. Mrs.

Oldham had a duty to learn about these authorities in 2012 when she asserted

the illegality defense against the Bank. Even assuming Mrs. Oldham did not

_____________________

440 (Tex. 1940), superseded by statute on other grounds, Act of May 27, 1979, 66th Leg., R.S.,

ch. 716, §§ 1-2, 1979 Tex. Gen. Laws. 1768 (current version at Tex. Civ. Prac. & Rem.

Code Ann. §§ 16.003, 16.004), as recognized in Williams v. Khalaf, 802 S.W.2d 651 (Tex.

1990))).

5

BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 65-67 (Tex. 2011).

6

Id. at 67.

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discover her injury until 2012, the statute of limitations would nonetheless

bar her claims since she did not sue until 2018. Therefore, neither fraudulent

concealment nor the discovery rule tolls the statute of limitations for Mrs.

Oldham’s claims. 7 The district court did not err in dismissing these claims.

Mrs. Oldham presents another basis for her misrepresentation claims

by arguing that the Bank committed a separate tortious act when it sold the

guaranty to the SBA after nonsuiting its case against Mrs. Oldham in 2015.

She alleges that the sale itself was tortious because the Bank negligently or

knowingly sold an illegal loan to the SBA and provided the SBA “wrongful

guidance” regarding the loan. But Mrs. Oldham did not raise this issue until

her reply brief. Although Mrs. Oldham referenced the sale in her amended

complaint in the district court, she never claimed that the sale itself was

wrongful in her amended complaint or in her opening brief on appeal.

Therefore, this argument is forfeited. 8 The district court properly dismissed

Mrs. Oldham’s claims against the Bank.

III

Mrs. Oldham’s amended complaint also sought a declaratory

judgment against the SBA that the personal guaranty she signed in 2006 was

unenforceable. 9 The district court dismissed Mrs. Oldham’s amended

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7

See Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 202 (Tex. 2011) (first

citing Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003); and then

citing Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514 (Tex.

1998)).

8

See United States v. Ponce, 896 F.3d 726, 728 (5th Cir. 2018) (“[S]he has forfeited

that argument by raising it for the first time in h[er] reply brief.” (citing Yohey v. Collins,

985 F.2d 222, 225 (5th Cir. 1993))).

9

Mrs. Oldham also brought claims under the Federal Debt Collection Procedures

Act and the Equal Credit Opportunity Act in her amended complaint in the district court.

However, she does not make any argument concerning these claims on appeal.

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complaint against the SBA “[e]ssentially for the reasons argued by SBA in

[its] . . . Motion to Dismiss.”

For the first time on appeal, the SBA now argues that, to the extent

the Bank’s alleged fraudulent inducement or novation “derivatively applies

or is imputed to the SBA,” the relevant statutes of limitations bar Mrs.

Oldham’s claims. A statute of limitations is an affirmative defense which

must be set forth in a responsive pleading. 10 Because the SBA did not raise

a limitations defense in the district court, any such argument is forfeited. 11 In

any event, the SBA’s limited references to limitations on appeal mean that

we would deem the defense abandoned for failure to brief it properly here. 12

Because we may affirm on any ground supported by the record and

argued below, we review each argument in the SBA’s motion to dismiss as a

potential basis for dismissal. 13 The SBA’s motion included four main

arguments: (1) the court lacked subject-matter jurisdiction because Mrs.

Oldham sued the SBA and not the SBA administrator; (2) Mrs. Oldham

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Accordingly, any argument concerning these claims is forfeited. See United States v. Gentry,

941 F.3d 767, 791 (5th Cir. 2019) (“Failure of an appellant to properly argue or present

issues in an appellate brief renders those issues abandoned.” (quoting United States v.

Beaumont, 972 F.2d 553, 563 (5th Cir. 1992) (per curiam))).

10

See Fed. R. Civ. P. 8(c) (requiring that, “[i]n responding to a pleading, a party

must affirmatively state any avoidance or affirmative defense, including . . . statute of

limitations”).

11

See Davis v. Huskipower Outdoor Equip. Corp., 936 F.2d 193, 198 (5th Cir. 1991);

see also Yohey, 985 F.2d at 225 (“As a general rule, this Court does not review issues raised

for the first time on appeal.”).

12

See Monteon-Camargo v. Barr, 918 F.3d 423, 428 (5th Cir. 2019); Gentry, 941 F.3d

at 791 (holding that a party abandoned an issue he failed to properly brief on appeal).

13

See Texas v. Travis County, 910 F.3d 809, 811 (5th Cir. 2018) (“We may affirm

‘on any ground supported by the record, including one not reached by the district court.’”

(quoting Ballew v. Cont’l Airlines, Inc., 668 F.3d 777, 781 (5th Cir. 2012))).

7

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failed to exhaust her administrative remedies before the SBA; (3) Mrs.

Oldham’s declaratory judgment action neither waived the SBA’s sovereign

immunity nor independently conferred jurisdiction on the court; and

(4) Mrs. Oldham failed to state a plausible claim for relief on any of the

theories supporting her declaratory judgment action. We address each

argument in turn.

A

The first argument in the SBA’s motion to dismiss was that the

district court lacked subject matter jurisdiction because Mrs. Oldham sued

the SBA rather than the SBA’s Administrator. Under 15 U.S.C.

§ 634(b)(1), the SBA’s Administrator can “sue and be sued in any court of

record of a State having general jurisdiction, or in any United States district

court.” 14 This statute “waives sovereign immunity . . . and confers

jurisdiction on United States district courts to hear such suits.” 15

In this case, Mrs. Oldham named the Administrator in the caption of

her amended complaint, she included the Administrator as a party to receive

service of summons, and she served the amended complaint to counsel for

the SBA via the court’s electronic filing system. Mrs. Oldham also included

several sentences in the opening of her amended complaint discussing the

Administrator and explaining how the Administrator could be served. Thus,

the SBA’s arguments that Mrs. Oldham failed to sue the Administrator are

not persuasive. The district court erred to the extent it relied on such

reasoning.

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14

15 U.S.C. § 634(b)(1).

15

Expedient Servs., Inc. v. Weaver, 614 F.2d 56, 57 (5th Cir. 1980) (first citing Romeo

v. United States, 462 F.2d 1036 (5th Cir. 1972); and then citing Mar v. Kleppe, 520 F.2d 867

(10th Cir. 1975)).

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On appeal, however, the SBA has slightly altered its argument. The

SBA appears to concede that Mrs. Oldham’s amended complaint named and

discussed the Administrator. The SBA now argues that Mrs. Oldham failed

to effectuate service on the Administrator and that the Administrator’s name

was never added to the docket. However, because the SBA did not raise this

challenge to service in its Rule 12 motion to dismiss in the district court, the

argument is forfeited. 16

B

The second argument in the SBA’s motion to dismiss was that Mrs.

Oldham failed to exhaust her administrative remedies before suing the SBA,

and, therefore, she failed to state a valid claim for relief. In the district court,

the SBA argued that Mrs. Oldham was required to request a hearing in order

to exhaust her administrative remedies. However, the SBA abandoned this

argument in their brief on appeal. 17 The SBA now argues that Mrs. Oldham

raised new arguments in court that she did not present in her administrative

proceedings. According to the SBA, Mrs. Oldham’s failure to raise these

arguments at the agency level is a failure to exhaust. But the SBA did not

raise this argument in the district court. Therefore, the SBA’s exhaustion

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16

See FED. R. CIV. P. 12 (g)-(h); see also Kersh v. Derozier, 851 F.2d 1509, 1511

(5th Cir. 1988) (“Under Rule 12(h)(1)(B), the defense of insufficient service of process is

waived unless made in a party’s first responsive pleading or an amendment to a first

responsive pleading allowed as a matter of course.”); Golden v. Cox Furniture Mfg. Co., 683

F.2d 115, 118 (5th Cir. 1982).

17

See Monteon-Camargo, 918 F.3d at 428 (“Generally speaking, a [party] waives an

issue if he fails to adequately brief it.” (alteration in original) (quoting United States v.

Martinez, 263 F.3d 436, 438 (5th Cir. 2001))); Gentry, 941 F.3d at 791 (“Failure of an

appellant to properly argue or present issues in an appellate brief renders those issues

abandoned.” (quoting United States v. Beaumont, 972 F.2d 553, 563 (5th Cir. 1992))).

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argument is forfeited. 18

C

The SBA next argued that Mrs. Oldham’s declaratory judgment

action should be dismissed pursuant to Rule 12(b)(1) because the Federal

Declaratory Judgment Act (FDJA) “does not operate in and of itself to

waive sovereign immunity or to confer jurisdiction on the federal courts.”

Although the FDJA requires some independent basis for subject matter

jurisdiction, including waiving or abrogating an otherwise applicable

sovereign immunity jurisdictional bar, 19 the “sue and be sued” clause in 15

U.S.C. § 634(b)(1) serves as such an independent basis. 20 For this reason,

the SBA’s third argument does not persuade.

D

The SBA’s final argument in its motion to dismiss was that Mrs.

Oldham failed to state a plausible claim for relief on any of the theories

supporting her declaratory judgment action. The relevant theories include:

(1) illegality; (2) fraudulent inducement; (3) mutual mistake of fact; and

(4) novation. We address each in turn. First, however, in briefing, the SBA

argues that the theories supporting Mrs. Oldham’s declaratory judgment

action were invalidly raised in an “affirmative” rather than a “defensive”

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18

See Grogan v. Kumar, 873 F.3d 273, 279 n.3 (5th Cir. 2017).

19

See, e.g., Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72 (1950); Jones

v. Alexander, 609 F.2d 778, 780-81 (5th Cir. 1980); Com. Metals Co. v. Balfour, Guthrie, &

Co., 577 F.2d 264, 268 (5th Cir. 1978).

20

See 15 U.S.C.A. § 634(b)(1); Expedient Servs., Inc., 614 F.2d at 57 (“[T]he court

did have jurisdiction under [15 U.S.C. § 634(b)(1)], which waives sovereign immunity by

allowing the Administrator of the Small Business Administration to sue or be sued and

confers jurisdiction on United States district courts to hear such suits.” (first citing Romeo

v. United States, 462 F.2d 1036; and then citing Mar v. Kleppe, 520 F.2d 867)).

10

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posture. To support this argument, the SBA points to the fact that Mrs.

Oldham failed to provide a single case where the theories supporting her

declaratory judgment were raised in an “affirmative” posture as part of

declaratory judgment action.

The SBA’s argument here is not entirely clear, though it seems to

argue that Mrs. Oldham cannot assert contract defenses offensively as the

basis of her claim in a declaratory judgment action. To the extent this is the

SBA’s argument, it is not persuasive. If a court could not consider defenses

brought in an “affirmative” posture, then the judgment of that court could

differ based on who brought an action over the exact same dispute.

Unsurprisingly, several courts have allowed plaintiffs to raise contract

defenses offensively as part of a declaratory judgment action. 21 Moreover,

the SBA has cited no authority to the contrary. Without more, the fact that

Mrs. Oldham raises contract defenses in an affirmative posture does not

support dismissal.

1

The first theory that Mrs. Oldham offers in support of her declaratory

judgment action is illegality. Under Texas law, illegality is an affirmative

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21

See In re Checking Account Overdraft Litig., 883 F. Supp. 2d 1251, 1255 (S.D. Fla.

2012) (permitting plaintiff to assert affirmative claim for declaratory judgment based on

unconscionability contract defense); Ross v. Wells Fargo, No. 3:08-1452, 2009 WL 357921,

at *2 (S.D. W.Va. Feb. 12, 2009) (noting that “that the defense of unconscionability of a

contract can be raised affirmatively in a declaratory judgment action”); Eva v. Midwest

Nat’l Mortg. Bank, Inc., 143 F. Supp. 2d 862, 895-96 (N.D. Ohio 2001) (“As a general

proposition, most matters of defense can be raised affirmatively in a declaratory judgment

action, so long as there is an actual controversy between the parties.”); see also Aetna Life

Ins. Co. v. Haworth, 300 U.S. 227 (1937) (“[T]he operation of the Declaratory Judgment

Act is procedural only.”).

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defense that voids the underlying contract. 22 A contract that is illegal on its

face will not be enforced. 23 Mrs. Oldham argues that her personal guaranty

is illegal, and therefore void, because the 2006 version of 13 C.F.R. § 120.160

and the SOP prohibited the Bank from requiring a personal guaranty from

her. The SBA argues that the regulations and the SOP give the loan officer

discretion in deciding whether to require a personal guaranty from an

individual with less than five percent ownership. We conclude that the

regulation, along with the SOP guidance, does give a lender some discretion

to require a personal guaranty from individuals with less than five percent

ownership under certain circumstances. However, because Mrs. Oldham’s

situation does not fit into any of the circumstances envisioned in the

regulation or the SOP, we conclude that requiring a personal guaranty from

Mrs. Oldham was beyond that discretion and thus improper.

The 2006 version of 13 C.F.R. § 120.160 provides a starting point for

the analysis. It states in relevant part:

The following requirements are normally required by SBA for

all business loans: . . .

Personal guarantees. Holders of at least a 20 percent

ownership interest generally must guarantee the loan. SBA, in

its discretion, consulting with the Participating Lender, may

require other appropriate individuals to guarantee the loan as

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22

See Denson v. Dallas Cnty. Credit Union, 262 S.W.3d 846, 852 (Tex. App.—

Dallas 2008, no pet.) (“A contract to do a thing which cannot be performed without

violation of the law violates public policy and is void.” (citing Villanueva v. Gonzalez, 123

S.W.3d 461, 464 (Tex. App.—San Antonio 2003, no pet.))); Signal Peak Enters. of Tex., Inc.

v. Bettina Inv., Inc., 138 S.W.3d 915, 920-21 (Tex. App.—Dallas 2004, pet. struck).

23

Signal Peak, 138 S.W.3d at 920-21; see also Denson, 262 S.W.3d at 852.

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well, except SBA will not require personal guarantees from

those owning less than 5% ownership. 24

SOP 50-10(4)(e) articulates the policy associated with the regulation.

It provides an example of when it may be appropriate to require a guaranty

from an individual regardless of ownership. Specifically, the SOP states that

“when a key management person would be vital to repayment ability, [the

lender] may require a guaranty, either limited or total, regardless of stock

ownership.” 25 However, such a guaranty is only appropriate “in exceptional

circumstances[,] such as when the guarant[y] of the owners is weak and

repayment ability is particularly dependent upon the key management

person.” 26

After this example, the SOP outlines several additional “Guaranty

Considerations.” 27 These considerations include specific guidance

regarding when the “guaranty of the owner(s)/principal(s) is weak.” 28 In

such a situation, the SOP states that the SBA “may require a guaranty from

someone else.” 29 This additional person “may be the spouse if the spouse

volunteers.” 30 But neither a lender nor the SBA may “specifically require a

non-owner spouse to be an obligor, co-obligor[,] or guarantor except where

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24

13 C.F.R. § 120.160 (2006) (emphasis added).

25

Small Bus. Admin., SOP 50-10(4), at 99, available at https://www.sba.gov

/sites/default/files/files/serv_sops_50104e_1_3.pdf.

26

Id.

27

Id.

28

Id.

29

Id.

30

Id.

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state law allows or requires this to perfect a lien where spousal interest is

involved.” 31

Contrary to Mrs. Oldham’s assertions, the language in the regulation

and the guidance in the SOP do provide a lender with some discretion to

require a personal guaranty from an individual with less than five percent

ownership. Indeed, the regulation begins with the qualification that its

“requirements are normally required by SBA for all business loans.” 32 In

other words, the requirements generally hold true; however, they are not

absolutes. The example in the SOP makes this point clear. The example

explains that the SBA may require a personal guaranty from a manager or

officer of a business—regardless of stock ownership—when “the guarant[y]

of the owners is weak and repayment ability is particularly dependent” upon

that person. 33 Moreover, the example specifically states that the SBA may

require a guaranty from a spouse “[w]here legal and appropriate.” 34 Given

this guidance, the five percent prohibition in the 2006 version of the

regulation cannot be considered an absolute bar as Mrs. Oldham contends.

Although the regulation and the SOP do provide some discretion, the

discretion is not as great as the SBA contends. The example in the SOP

explains that a lender can require a personal guaranty from a nonowner

manager or officer only when the nonowner is “vital” to repayment ability or

when repayment ability is “particularly dependent” on the nonowner. 35 At

the time the Bank told Mrs. Oldham that the SBA required her personal

_____________________

31

Id.

32

13 C.F.R. § 120.160 (2006) (emphasis added).

33

Small Bus. Admin., supra note 25, at 99.

34

Id.

35

Id.

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guaranty, Mrs. Oldham did not fit either description. Mrs. Oldham’s

husband was the president of the company, and he held the majority

ownership interest. Mrs. Oldham had no ownership interest. Although the

record indicates that Mr. Oldham’s guaranty was possibly weak, nothing in

the record indicates that obtaining Mrs. Oldham’s personal guaranty was

“vital” to repayment or that repayment ability was “particularly dependent”

on her. Indeed, at the time of the loan signing, Mrs. Oldham was

“unemployed, with no income or liquid assets.” Repayment could not have

been “particularly dependent” on obtaining Mrs. Oldham’s personal

guaranty, and she was not “vital” to repayment ability.

The SOP also places limitations on lenders requiring personal

guaranties from nonowner spouses. According to the SOP, the spouse must

volunteer to guarantee the loan personally. 36 If the spouse does not

volunteer, then the lender may only require a guaranty when “state law

allows or requires [a personal guaranty] to perfect a lien where spousal

interest is involved.” 37 Again, Mrs. Oldham does not fit the description. 38

She did not volunteer to act as a personal guarantor. Nor is there anything in

the record that suggests requiring Mrs. Oldham’s personal guaranty was

permissible under state law or necessary to perfect a lien on a spousal interest.

Therefore, the Bank could not have required Mrs. Oldham’s personal

guaranty in her capacity as Mr. Oldham’s spouse.

In sum, the regulation and the guidance in the SOP do give a lender

some discretion to require a nonowner spouse to personally guarantee a loan.

But that discretion only extends to certain circumstances; none of which are

_____________________

36

Id.

37

Id.

38

See id.

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No. 19-10644

present here. For this reason, we conclude that requiring Mrs. Oldham’s

personal guaranty was improper. The district court erred in concluding

otherwise.

2

The second theory that Mrs. Oldham contends supports her

declaratory judgment action is fraudulent inducement. To establish

fraudulent inducement as an affirmative defense to the enforcement of a

contract, a party must establish the elements of fraud “as they relate to an

agreement between the parties.” 39 The elements of fraud require a party to

show (1) “the defendant made a material representation that was false”;

(2) “the defendant knew the representation was false or made it recklessly as

a positive assertion without any knowledge of its truth”; (3) “the defendant

intended to induce the plaintiff to act upon the representation”; and (4) “the

plaintiff actually and justifiably relied upon the representation and suffered

injury as a result.” 40

In this case, Mrs. Oldham argued that the Bank made the false

representation that the SBA required her personal guaranty when, in fact, it

was illegal. The district court rejected Mrs. Oldham’s argument. Instead, it

accepted the Bank’s argument that the guaranty was not illegal, but rather a

valid exercise of the Bank’s discretion under the relevant regulations. Having

determined that the personal guaranty was not illegal, the district court did

not have occasion to consider Mrs. Oldham’s fraudulent inducement claim

against the SBA. Because we conclude that Mrs. Oldham’s personal

_____________________

39

See McLernon v. Dynegy, Inc., 347 S.W.3d 315, 328 (Tex. App.—Houston [14th

Dist.] 2011, no pet.) (quoting Haase v. Glazner, 62 S.W.3d 795, 798-99 (Tex. 2001)).

40

JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648, 653

(Tex. 2018) (internal quotation marks omitted) (quoting Ernst & Young, L.L.P. v. Pac. Mut.

Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001)).

16

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No. 19-10644

guaranty was improper, we vacate the district court’s dismissal of Mrs.

Oldham’s fraudulent inducement claim and remand for reconsideration.

3

In addition to illegality and fraudulent inducement, Mrs. Oldham

argues that a mutual mistake of fact bars enforcement of her personal

guaranty. Under Texas law, the mutual mistake of fact defense has three

elements: (1) “a mistake of fact”; (2) “held mutually by the parties”;

(3) “which materially affects the agreed-upon exchange.” 41 “Mutual

mistake . . . requires evidence showing both parties were acting under the

same misunderstanding regarding the same material fact.” 42

Here, there is no disconnect between the parties’ intention and the

written agreement. The Bank and Mrs. Oldham intended to enter into a

personal guaranty agreement to enable her husband’s company to obtain

SBA-backed financing. Mrs. Oldham’s written personal guaranty

agreement reflects that intention. The only mistake between the parties was

whether the personal guaranty was required by law rather than discretionary.

But that does not mean the agreement does not accurately reflect their

intentions; rather, it means that the reasons for their intentions were

misinformed. Accordingly, Mrs. Oldham cannot succeed on her mutual

mistake of fact defense. The district court did not err in dismissing this claim.

_____________________

41

Trahan v. Mettlen, 428 S.W.3d 905, 908 (Tex. App.—Texarkana 2014, no pet.)

(quoting City of the Colony v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 735 (Tex. App.—

Fort Worth 2008, pet. dism’d)).

42

Samson Expl., LLC v. T.S. Reed Props., Inc., 521 S.W.3d 766, 779 (Tex. 2017); see

also N.Y. Party Shuttle, LLC v. Bilello, 414 S.W.3d 206, 212 (Tex. App.—Houston [1st

Dist.] 2013, pet. denied); Smith-Gilbard v. Perry, 332 S.W.3d 709, 713 (Tex. App.—Dallas

2011, no pet.).

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4

The final theory Mrs. Oldham alleges supports her declaratory

judgment action is novation. To establish a novation, a party must prove:

“(1) . . . a previous, valid obligation; (2) a mutual agreement of the parties to

a new contract; (3) the extinguishment of the old contract; and (4) the

validity of the new contract.” 43 Novation can occur when a new contract is

“so inconsistent with a former agreement that the two cannot subsist

together.” 44 “In the absence of inconsistent provisions, ‘a second contract

will operate as a novation of a first contract only when the parties to both

contracts intend and agree that the obligations of the second shall be

substituted for and operate as a discharge of the obligations of the first.’” 45

Thus, “[w]hether a subsequent agreement operates as a novation of the first

is a question of intent.” 46 “It must clearly appear that the parties intended a

novation, and novation is never presumed.” 47

According to Mrs. Oldham, the restructuring agreement in 2010

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43

Donley v. Payne, 2018 WL 3384561, at *5 n.4 (Tex. App.—Houston [1st Dist.]

July 12, 2018, no pet.) (citing N.Y. Party Shuttle, LLC, 414 S.W.3d at 214).

44

In re B.N.L.-B., 523 S.W.3d 254, 264 (Tex. App.—Dallas 2017, no pet.) (citing

Fulcrum Cent. v. AutoTester, Inc., 102 S.W.3d 274, 277 (Tex. App.—Dallas 2003, no pet.));

see also JMW Partners, L.P. v. Northstar Bank of Tex., No. 2-09-167-CV, 2010 WL 2331399,

at *5-6 (Tex. App.—Fort Worth June 10, 2010, no pet.).

45

Fulcrum Cent., 102 S.W.3d at 277 (quoting Chastain v. Cooper & Reed, 257 S.W.2d

422, 424 (Tex. 1953)).

46

In re Bath Junkie Franchise, Inc., 246 S.W.3d 356, 365 (Tex. App.—Beaumont

2008, orig. proceeding) (citing Allstate Ins. Co. v. Clarke, 471 S.W.2d 901, 907 (Tex. App.—

Houston [1st Dist.] 1971, writ ref’d n.r.e.)); see also White v. Harrison, 390 S.W.3d 666, 679

(Tex. App.—Dallas 2012, no pet.) (“When construing a written contract such as [a]

[g]uaranty, our primary concern is to ascertain the true intentions of the parties.” (citing

Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)).

47

Fulcrum Cent., 102 S.W.3d at 278 (citing Allstate, 471 S.W.2d at 907).

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extinguished all prior debts, including her personal guaranty. However, Mrs.

Oldham has not alleged that the Bank or the SBA intended or agreed to

release her from the guaranty or to substitute a different party in her place.

Mrs. Oldham has also not pointed to any inconsistencies or contradictions

between the personal guaranty and the subsequent restructuring agreement.

Moreover, the terms of Mrs. Oldham’s personal guaranty indicate that the

guaranty was intended to endure despite any potential future restructuring of

the underlying debt, and nothing in the restructuring agreement appears so

unreasonable or unforeseeable so as to render that clause inapplicable here.

Thus, without additional allegations from Mrs. Oldham concerning an

agreement among the parties, Mrs. Oldham’s novation claim cannot meet

the Rule 12(b) plausibility threshold. 48 The district court did not err in

dismissing this claim.

* * *

For these reasons, we REVERSE the district court’s dismissal of

Mrs. Oldham’s declaratory judgment action against the SBA on illegality;

we VACATE the district court’s dismissal of Mrs. Oldham’s declaratory

judgment action against the SBA on fraudulent inducement; we AFFIRM

the district court’s dismissal of Mrs. Oldham’s declaratory judgment action

against the Bank, its dismissal of her monetary damage claims against the

Bank, and its dismissal of the remaining declaratory judgment claims against

the SBA; and we REMAND this case to the district court for further

proceedings consistent with this opinion.

_____________________

48

See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly,

550 U.S. 544, 555 (2007)).

19