Chesapeake Bay Builders, Inc. (Bay Builders) executed a promissory note in the sum of $100,000.  It was payable to the order of Chesapeake Bank and Trust. On the same date, Charles H. Eure, Jr., who was a principal in Bay Builders, and his spouse, Louise R. Eure, executed an “Unconditional Guaranty”.    They agreed to guarantee payment of “all liabilities” of Bay Builders to Chesapeake Bank.

Bay Builders defaulted in payment of the note.   Jefferson National made a demand on the guarantors to pay the balance due.   The demand was not met.  Jefferson National brought this action against Bay Builders and the guarantors seeking to recover the sum of $72,714.10, plus interest, attorney’s fees, and costs.

Louise R. Eure asserted the defense that she was required to sign the guaranty “solely on the basis of her marital status as the wife of Charles H. Eure, Jr..”     She argued that the transaction violated the Equal Credit Opportunity Act, and, therefore, that the guaranty was void as applied to her. In a pretrial hearing, the trial court struck Mrs. Eure’s defense and later entered judgment against her for the balance due on the promissory note executed by Bay Builders.  Mrs. Eure appealed.

The Appellate Court limited her appeal to the question of whether the trial court erred in ruling that the Act does not provide a defense to a person whose signature has been required on a credit instrument solely because of his or her status as a spouse of any applicant for credit.   The Appellate Court found that the Trial Court had erred in its ruling, and reversed the decision against Mrs. Eure.

Jefferson National maintains that the Act specifically provides only for the recovery of damages, which may be sought by way of counterclaim.  Had Congress intended to provide additional relief in the form of defense, “it would have included such a provision” in the Act.

To permit the use of the Act as a defense in such circumstances, Mrs. Eure says, “would allow the primary debtor to escape liability on a debt instrument executed independently of an ECOA violation.”

The Appellate Court:  We think that ECOA is a statute enacted to protect the public against fraud or imposition or to safeguard public health or morals. In other cases, we allowed defensive use of a statutory violation to avoid liability under a contract. We hold that Mrs. Eure was entitled to make similar use of the ECOA violation involved in this case to avoid liability.  But, only her liability, under the guaranty agreement she executed in favor of Chesapeake Bank.

Eure v. Jefferson Nat. Bank, 248 Va. 245, 448 S.E.2d 417.

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