Riggs Case
Answer the following questions:
1. Did the bank violate the Equal Credit Opportunity Act. Yes, or no, why or why not?
No, the bank didn’t violate the equal credit opportunity act because under the ECOA, a creditor may not require the signature of an applicant’s spouse other than as a joint applicant on a credit instrument if the applicant qualifies under the creditor’s standards of worthiness for the amount and terms of the credit request. To qualify Linch’s financial statement because he had joint asset with his wife, she had to sign the personal guaranty as a condition for loan otherwise bank couldn’t approve the Linch’s loan because they couldn’t have any collateral for their loan as a security when the asset owns jointly by both spouses. And also Lincoln’s wife absolutely and unconditionally guaranteed the full payment of the balance due on the Note at maturity, including principal, interest, fees and other charges.
The equal credit opportunity act prohibits the denial of credit solely on the basis of race, religion, national origin, color, gender, marital status, or age. The act also prohibits credit discrimination on the basis of whether an individual receives certain forms of income, such as public-assistance benefits. Under the ECOA, a creditor may not require the signature of an applicant’s spouse other than as a joint applicant on a credit instrument if the applicant qualifies under the creditor’s standards of worthiness for the amount and terms of the credit request.
2. Find the place in your book, page number, and what is says to answer this case problem.
Chapter 44, Consumer law, page 911, Equal Credit Opportunity.
In a part of the act it says: Under the ECOA, a creditor may not require the signature of an applicant’s spouse other than as a joint applicant on a credit instrument if the applicant qualifies under the creditor’s standards of worthiness for the amount and terms of the credit request.
3. Then look at the case at Riggs National Bank of Washington D.C. v. Linch, 36 F.3d 370 (4th Cir. 1994) - and state the court's ruling, in whose favor, the Bank or the Borrowers, and why, and the legal rule the court applied.
Court Ruled in favor of the bank because of the reasons below:
When Riggs on November 14, 1986 approved the first loan request, it did not know that some of the assets listed on Linch's personal financial statement were jointly owned. Initially, Riggs had required that only Linch and Randolph each execute a personal guaranty in the principal amount of the approved loan. Their respective spouses had not been required to do so.
Prior to closing, Riggs learned that many of the significant assets listed on Linch's personal financial statement were jointly owned by Linch and his wife.So the Linch personal financial statement had no used for Riggs so as a condition of the loan, Riggs required that Marcia Linch also sign a personal guaranty. Then Riggs’s loans were made to Linch and Randolph.
When the borrowers defaulted, Riggs filed sue against Linch and his wife as guarantor. The borrowers also filed a complaint against Riggs for breach of an implied duty of good faith and fair dealing.
Riggs filed for motion under Rule 12(c), F.R.Civ.P seeking partial judgment on the pleadings as to the Guarantors' claims against Riggs for breach of an implied duty of good faith and fair dealing. Riggs consolidated the cases they had against the borrowers.
On March 15, 1993, these consolidated cases came on for trial before the district court, sitting without a jury. By that time, only two sets of claims remained: (1) Riggs' claims against each of the Guarantors to recover on their guaranties; and (2) the Guarantors' claims against Riggs for violating the ECOA. Court ruled in favor of Riggs. The Court concluded that Riggs had not violated the ECOA in any of its transactions with the Linches and that Randolph had no standing to sue under the statute. Alternatively, the district court ruled that, even if the Guarantors could establish that Riggs had violated the ECOA, they would not in any event be entitled to the relief which they sought, because an ECOA violation could not be raised as an affirmative defense to Riggs' claim against the Guarantors based on the personal guaranties executed by them. The borrowers appealed.
An implied duty of good faith cannot be used to override or modify explicit contractual terms. See, e.g., General Aviation, Inc. v. Cessna Aircraft Co., 915 F.2d 1038, 1041 (6th Cir.1990); Grand Light & Supply Co. v. Honeywell, Inc., 771 F.2d 672, 679 (2d Cir. 1985). Under the explicit terms of the Note at issue here, interest accrued on the outstanding principal at a rate equal to Riggs' prime rate plus three percentage points. Furthermore, the Note expressly stated that the Borrowers had "requested the Riggs Prime Rate be used as the interest rate index for this Note." Under these circumstances, it cannot be disputed that the Note conferred upon Riggs the sole discretion to set its own prime rate and that no implied duty of good faith can be relied upon for a renegotiation of the terms of the Note.
Tymshare, Inc. v. Covell, 727 F.2d 1145 (D.C.Cir.1984), relied upon by appellants, is not to the contrary. In that case, an implied duty of good faith may place some limitations upon the otherwise unfettered discretion of one party to a contract to determine the extent of the other party's contractual obligations. The object of our inquiry is whether it was reasonably understood by the parties to this contract that there were at least certain purposes for which the expressly conferred power to adjust the prime rate could not be employed.
Tymshare is inapplicable here because the Note at issue in this case, unlike the contract at issue in Tymshare, did not confer an unfettered discretion upon one party to determine the extent of the other party's contractual obligations. Rather, Riggs' discretion to set the interest rate charged under the Note was expressly "fettered" by the bargained for limitation that the interest charged under the Note would not exceed 15 percent. Under applicable Virginia law, where a contract is clear and unambiguous on its face, a court need not, indeed may not, search beyond the terms of the contract to extract its meaning. E.g., Lerner v. Gudelsky Co., 230 Va. 124, 334 S.E.2d 579, 584 (1985); Amos v. Coffey, 228 Va. 88, 320 S.E.2d 335, 337 (1984).
Appellants next contend that the district court erred in concluding that Riggs did not violate the ECOA by requiring Marcia Linch to execute a personal guaranty of the Note.
It established that the ECOA, 15 U.S.C. § 1691 et seq., and its implementing regulations, 12 C.F.R. § 202.1 et seq., prohibit a creditor from requiring a spouse's signature on a note when the applicant individually qualifies for the requested credit. Anderson v. United Finance Co., 666 F.2d 1274, 1277 (9th Cir.1982).
In applying these provisions to the facts of record here, the district court properly recognized that the determinative factual issue was whether Riggs had made a determination that Samuel Linch was not independently creditworthy for the requested loan before it required that Marcia Linch also be a personal guarantor of the loan.
After hearing testimony and receiving evidence at the trial, the district court found as a fact that Riggs did not require Marcia Linch to be an additional guarantor until after it had learned that Samuel Linch did not individually own many of the substantial assets which he had listed on the "personal" financial statement submitted by him to Riggs with the original loan application.
Riggs did not discriminate against Marcia Linch on the basis of her marital status. Riggs therefore did not violate the ECOA in its dealings with the Guarantors.
Nor did the district court err in ruling that Randolph lacked standing to assert an ECOA claim against Riggs. Riggs did not require Randolph's spouse to be a guarantor of the Note. Accordingly, Randolph is not an "aggrieved applicant" within the meaning of the ECOA, and he therefore cannot bring suit in his own name under that statute. 15 U.S.C. §§ 1691a(b), 1691e(a).
Finally, because we conclude that the district court did not err in finding that Riggs did not violate the ECOA in any of its dealings with appellants, we need not reach the issue whether an ECOA violation by a creditor can properly be raised by the debtor as an affirmative defense in the nature of an avoidance or rescission of the underlying debt.