Limiting SBA’s Discretion: Personal Guaranties from Non-Owner Spouses

Introduction

Oldham v. SBA is an appeal decided May 14, 2025, by the United States Court of Appeals for the Fifth Circuit. Jeanette H. Oldham (“Mrs. Oldham”) sued First Bank Texas (the “Bank”) and the Small Business Administration (“SBA”) after the Bank required her—though she had no ownership interest—to sign an unconditional personal guaranty for her husband’s, Mr. Oldham’s, SBA-backed business loan. Years later, following business defaults and enforcement actions, Mrs. Oldham challenged the validity of that guaranty under federal regulations and SBA standard operating procedures (“SOP”), sought damages for misrepresentation, and asked for a declaration that her guaranty was unenforceable. The district court dismissed all claims; Mrs. Oldham appealed.

Summary of the Judgment

The Fifth Circuit:

Affirmed the dismissal of Mrs. Oldham’s misrepresentation and declaratory-judgment claims against the Bank—finding them time-barred or forfeited.
Reversed the dismissal of her declaratory-judgment claim against the SBA on the ground that the personal guaranty was illegal as beyond SBA discretion under 13 C.F.R. § 120.160 (2006) and SOP 50-10(4)(e).
Vacated the dismissal of her SBA fraudulent-inducement claim and remanded for further proceedings consistent with its holding on illegality.

Analysis

Precedents Cited

15 U.S.C. § 634(b)(1) & “sue and be sued” jurisprudence (Romeo v. United States; Expedient Servs. v. Weaver) – sovereign-immunity waiver & subject-matter jurisdiction for SBA Administrator.
Statute-of-Limitations Law (Exxon Corp. v. Emerald Oil & Gas; Shannon v. Law-Yone; Woods v. Mercer; BP Am. Prod. Co. v. Marshall) – accrual, discovery rule, fraudulent concealment, tolling.
Declaratory Judgment Act (Skelly Oil Co. v. Phillips Petroleum; Jones v. Alexander) – requirement of independent jurisdictional basis beyond the Act itself.
Contract Defenses (Haase v. Glazner; McLernon v. Dynegy; Signal Peak Enters. v. Bettina) – illegality, fraudulent inducement, mutual mistake, novation.

Legal Reasoning

1. Illegality of the Spousal Guaranty. The court interpreted 13 C.F.R. § 120.160 (2006) and SOP 50-10(4)(e), which generally prohibit requiring personal guarantees from individuals owning less than 5%. Although the regulation and SOP grant some discretion when an owner’s guaranty is “weak” or when a non-owner spouse “volunteers,” they limit that discretion to “exceptional circumstances” where repayment “particularly depend[s]” on that person. At signing, Mrs. Oldham was unemployed, owned 0% of the company, and was not “vital” to repayment. She did not volunteer to guarantee the loan, nor was state law cited to justify the requirement. The Bank’s absolute insistence that “SBA require[d]” her signature exceeded the narrow discretion afforded by SBA rules. The Fifth Circuit thus held the guaranty illegal and void.

2. Fraudulent Inducement. Because the guaranty was invalid, the Bank’s repeated statements that “the SBA required” Mrs. Oldham’s guaranty were materially false and made recklessly or knowingly. On remand, the court must consider the elements of fraudulent inducement—false representation, knowledge of falsity, intent to induce, justifiable reliance, and damages—against the SBA as successor debt holder.

3. Other Defenses. The court rejected mutual mistake because both parties intended to sign a guaranty (regardless of its legal validity). It declined novation in the absence of any clear intent in the 2010 restructuring agreement to discharge Mrs. Oldham from her original guaranty. It also affirmed dismissal of all claims against the Bank as time-barred or forfeited.

Impact

Clarifies SBA’s limited discretion in requiring personal guaranties: lenders must adhere strictly to SOP guidance when seeking spousal guarantees.
Heightens scrutiny of loan-closing representations by lenders and the SBA, bolstering potential fraud actions if SBA rules are mischaracterized as mandatory.
Equips borrowers—especially non-owner spouses—to challenge overreaching guaranty requirements and seek declaratory relief.
May prompt revisions to SOP or lender training to ensure voluntary spousal guaranty practices and proper reliance on “vital to repayment” criteria.

Complex Concepts Simplified

Personal Guaranty: A promise by an individual to pay a borrower’s debt if the borrower defaults. “Continuing and unconditional” means it covers all obligations, past and future, relentlessly.
“Joint and Several Liability”: The guarantor is individually liable for the entire debt alongside or instead of other obligors.
Statute of Limitations: Time limit to file suit—fraud: 4 years; negligent misrepresentation: 2 years. Begins when the false statement is made or discovered.
Discovery Rule & Fraudulent Concealment: Tolling doctrines that delay accrual until the injury is or should be discovered, but require reasonable diligence to check public records (e.g., SOPs).
Declaratory Judgment Act: Allows courts to declare rights or duties under a contract, but does not alone waive sovereign immunity—§634(b)(1) does so for SBA.
Mutual Mistake: Both parties misunderstand a material fact that forms the contract’s basis. Not met when only the legal effect is unclear.
Novation: Replacing one contract or obligor with another. Requires clear intent to extinguish the old obligation and substitute a new one.

Conclusion

Oldham v. SBA sets a new precedent: the SBA’s discretionary power to require non-owner spouses’ personal guaranties is not unlimited. Guaranties may be demanded only in “exceptional circumstances” where repayment truly depends on that individual or if the spouse volunteers (or state law compels it). Courts will void any guaranty obtained by misrepresenting SBA rules as mandatory beyond those narrow bounds. Lenders and the SBA must comply precisely with SOP guidance or face illegality and fraud claims—and borrowers gain a sharper tool to challenge overbroad guaranty demands.