Baybank v. Bornhofft6/3/1998
The plaintiff bank brought a collection action against various parties including the defendant, Nancy L. Bornhofft, to collect on a $440,000 note in default. She counterclaimed, alleging that the bank violated the Equal Credit Opportunity Act (ECOA), 15 U.S.C. Sects. 1691-1691f (1994), and G. L. c. 93A, by requiring her signature on the note. The Judge granted summary judgment for the bank, finding that the defendant lacked standing to seek redress under ECOA. We affirm in part and remand in part for further proceedings.
I.
The Superior Court Judge found the following facts. In 1983, Henry J. Bornhofft, Third (Henry), bought out two partners to acquire control over the Gloucester Yankee Marine Service, Inc. (GYMS), a full-service yacht yard in Gloucester owned by a trust established in 1982 (trust). Henry thereupon became the one hundred per cent beneficiary of the trust. In 1985, the defendant, Henry's mother, gave Henry $50,000 in exchange for a twenty-five per cent interest in the trust. At that time, the yacht yard was worth approximately $600,000. The defendant apparently often assisted Henry financially. During the period from 1984 to 1994, for example, she gave over $650,000 to Henry or to other individuals on his behalf.
In July, 1987, GYMS was suffering a severe cash flow shortage, and its primary lender had begun foreclosure proceedings against GYMS and the trust. Henry was also seriously delinquent on a number of personal loans. In 1987, Henry completed a business plan and a loan application for the bank in order to secure additional financing of $400,000 to $500,000. The business plan showed that GYMS had a year-end net income of $31 as of April 30, 1987. On the application, Henry designated the trust as the borrower and under the words "Guarantees: names of persons who will guarantee or endorse loan," Henry listed himself as seventy-five per cent beneficiary of the trust and his mother, the defendant, as twenty-five per cent beneficiary. Henry signed the application on the trust's behalf. Henry did not inform the defendant of this, nor did the bank request or receive any financial or net worth information about her.
Based on the application, the bank completed a commitment letter setting forth the terms of the loan and providing that the defendant would be personally liable for the loan obligations as comaker of the loan. Both Henry Bornhofft and the defendant signed the letter. The bank then drafted the loan instruments, and on July 24, 1987, a promissory note in the amount of $440,000 was executed by Henry Bornhofft and the defendant as "Borrower," and endorsed by Henry Bornhofft as trustee of the trust as guarantor.
In November, 1989, the defendant was assigned Henry Bornhofft's seventy-five per cent interest in the trust after she paid $285,000 to another creditor, Richard Ravech, to rescue Henry from foreclosure proceedings. At that time, she acknowledged that she was comaker of the $440,000 note with the bank and agreed to make all payments on the loan. In 1989, the defendant also signed several forbearance agreements under which the bank agreed to forbear from collection activities for a one-year period.
On April 11, 1994, the bank filed a complaint against Henry Bornhofft and his mother, individually; J. Eric Bornhofft and Henry Bornhofft as trustees of the trust; and GYMS, to recover on the $440,000 note and on a second $45,000 note to GYMS. See note 2, supra. After Henry Bornhofft sought bankruptcy protection, the bank dismissed its claims against him. On May 18, 1994, the defendant filed a counterclaim alleging that the bank had violated ECOA and G. L. c. 93A. Both parties filed motions for summary judgment, and on
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