Husband not liable for forged personal guarantees

Where the evidence demonstrated the debtor’s wife likely forged his signatures on personal guarantees to obtain loans, the bank failed to carry its burden to prove the guarantees were genuine copies of original documents signed by the debtor. With respect to one guarantee, however, the debtor could not claim it was a forgery because he had previously confirmed he executed it.

Background

Until 2012, Byron David was part owner of Blue Ridge Technical Services Inc. His wife, Lisa David, was an accountant by trade and served as the bookkeeper for her husband’s company. She was also part owner of David-Cantrall and Associates Inc.

From 2005 to 2012, Summit Community Bank loaned over $3 million to David-Cantrall and companies owned and controlled by its partners. When the companies defaulted on the loans, Summit foreclosed on the properties under the deeds of trust. After disposition of those assets, Summit sued Byron David for the deficiencies due on the notes. Summit’s five claims for the deficiencies are based on the personal guarantees attached to its proofs of claims.

Forgeries

Mr. David’s specific denials of signing the guarantees attached to claims 3-3, 5-3, 6-3 and 7-3 and other evidence before the court tends to show that some of the documents that serve as the bases for these claims are fabrications that may be forgeries created by Lisa David. The court finds Mr. David has met his burden of rebutting the presumptive validity of claims 3-3, 5-3, 6-3 and 7-3, and that Summit must bear the ultimate burden of proving that Mr. David signed the instruments it seeks to enforce by a preponderance of the evidence.

Spoliation

Mr. David contends that Summit’s claims should be disallowed because the lender is responsible for destroying the original documents which, according to the experts, are necessary to prove Mr. David did not put pen to paper on the originals. However, Summit had no duty to preserve the guarantees in perpetuity. While it is undisputed that Summit seeks to enforce original documents it destroyed, the duty to preserve arises when a party “reasonably should know that the evidence may be relevant to anticipated litigation.”

Here, Summit destroyed the documents long before thoughts of litigation against Byron David arose. Its long-standing blanket policy of destroying guarantees was not in effect for the sole purpose of spoliating evidence for litigation. Therefore, the court cannot disallow the claims based on spoliation of the original guarantees.

Unconscionability

The debtor argues that the “guarantee” instruments Summit seeks to enforce are really “suretyships.” However, the Loudoun County Circuit Court found that the law of suretyship did not apply in this case. This court agrees with the Circuit Court, especially since Mr. David would not benefit under the facts of this case by arguing that the guarantee he signed created a suretyship. A guarantee requires the lender to proceed against the borrower and then against the guarantor, and that is what Summit did in this case.

In the alternative, Mr. David pleads that the guarantees are facially unconscionable and unenforceable because they are of an indefinite duration and do not provide a means for the signer to terminate or revoke them. Mr. David fails to meet his burden of proving that there was gross inequality in the value exchanged.

Equal Credit Opportunity Act

To state a claim under 12 C.F. R § 202.7(d)(1), the debtor must show (1) Summit determined that Lisa David was creditworthy in her own right and (2) Summit nonetheless required Byron David to sign a “credit instrument.” Mr. David’s challenge to Summit’s claims based on ECOA violations fails.

Conclusion

The court finds that claim 4-3 is a valid claim against Mr. David’s estate. Mr. David admitted or confirmed on at least three occasions that he executed exhibit four, which is his guarantee for loan No. 358003 supporting claim 4-3. He therefore cannot claim that this guarantee is a forgery.

The court reaches a different result, however, with respect to claims 3-3, 5-3, 6-3 and 7-3. Once the burden of proof of validity shifted to the bank, Summit failed to produce evidence sufficient to prove the photocopied guarantees supporting these claims were genuine copies of original documents signed by Byron David.

In re David, No. 18-12396, Jan. 27, 2020. EDVA Bankr. at Alexandria (Kindred). VLW No. 020-4-001, 15 pp.