Manufacturers and Traders Trust Co. v. Justofin
Manufacturers and Traders Trust Co. v. Justofin No. 2045 MDA 2016
Pa. Super. Ct.Jun 21, 2017Background
- In 2006 Christopher applied for a $205,000 loan from M&T Bank for his professional corporation; Christopher met with a bank officer and provided joint tax documents.
- Kelly Justofin (wife) did not participate in the application, had minimal personal assets, and was not independently creditworthy.
- At closing (May 9, 2006) Kelly was told for the first time she must sign a guaranty and mortgage; she signed to accommodate her husband.
- The 2006 note was later amended in 2011, and Kelly executed a guaranty of the amended note; payments ceased in 2013.
- Trial court found Christopher was independently creditworthy, M&T required Kelly’s guaranty solely because she was his spouse, and Kelly’s guaranty violated the Equal Credit Opportunity Act (ECOA).
- Trial court dismissed M&T’s collection action against Kelly on ECOA grounds; M&T appealed the legal question whether non-applicant guarantors are protected by the ECOA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether non-applicant spouse-guarantors are protected by the ECOA | Kelly: ECOA and Regulation B protect guarantors; a spouse forced to guaranty when applicant is creditworthy can assert ECOA as a defense | M&T: ECOA protects only "applicants"; a non-applicant guarantor is not an applicant and thus not covered (relying on Hawkins) | Court: Guarantors may be considered applicants for ECOA purposes; protection applies where spouse was not a joint applicant and applicant was independently creditworthy |
| Whether M&T established an exception to Regulation B permitting the spousal guaranty | N/A (burden shifts to creditor once violation shown) | M&T: asserted exceptions (e.g., necessity to reach joint property or other permissible bases) | Court: M&T failed to prove any applicable exception; guaranty not necessary to reach jointly held property |
| Whether Kelly’s ECOA defense voids her guaranty and warrants dismissal | Kelly: successful ECOA defense voids guarantor’s obligation and supports dismissal of action against her | M&T: contested applicability of ECOA | Court: Kelly met burden; judgment entered for Kelly; guaranty unenforceable as to her obligation |
| Entitlement to attorney’s fees under ECOA | Kelly: prevailing party on ECOA counterclaim entitled to attorney fees | M&T: sought reconsideration on fees; court struck fee award | Court: trial court later struck the attorney-fee conclusion; appellate court affirmed judgment for Kelly but recognized trial court removed fee award on reconsideration |
Key Cases Cited
- Silverman v. Eastrich Multiple Investor Fund, L.P., 51 F.3d 28 (3d Cir. 1995) (recognizes spouse-guarantor may assert ECOA defense)
- RL BB Acquisition, LLC v. Bridgemill Commons Development Group, LLC, 754 F.3d 380 (6th Cir. 2014) (describes plaintiff burden and creditor’s burden to prove exceptions to spouse-guarantor rule)
- Midlantic Nat'l Bank v. Hansen, 48 F.3d 693 (3d Cir. 1995) (defines "joint applicant" and distinguishes joint applicants from required signatories)
- Southwestern Pennsylvania Regional Council, Inc. v. Gentile, 776 A.2d 276 (Pa. Super. Ct. 2001) (Pennsylvania authority holding guarantors are considered applicants under ECOA)
- Hawkins v. Community Bank of Raymore, 761 F.3d 937 (8th Cir. 2014) (holds guarantor is not an "applicant" under ECOA; relied on by M&T though per curiam U.S. Sup. Ct. affirmance was an equally divided Court)