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Can A Bank Take A Husband And Wife’s Home To Satisfy Husband’s B
Developments in Vermont Law
By Kimberly B. Cheney
Can A Bank Take A Husband And Wife’s Home To Satisfy Husband’s Bad Debt?
The Citizens Bank of Rhode Island (Citizens) loaned Jan Ouhrabka’s business, Providence Chain Company, of East Ryegate, $15,000,000, which Jan personally guaranteed. On his loan application he listed his house, owned jointly with his wife, as an asset worth $250,000. Providence Chain failed leaving at debt of about $10,000,000. Citizens sued Jan on his personal guarantee and sought to place an attachment on his Ryegate house. To obtain an attachment a creditor must establish in Court that the debt is owed and the defendant’s property can be taken to satisfy it. Jan objected, stating Citizens could not collect the debt by taking property owned jointly by himself and his wife as tenants by the entirety. The trial court agreed and refused to allow the attachment. Citizens appealed
In the Supreme Court, Citizens argued that the rule prohibiting attachment of marital property is out of date and should be overruled. It argued that at common law, as late as 1902 in Vermont, the legal existence of the wife was suspended during the marriage, and the husband acquired a vested interest in all wife’s property, and could sell it or mortgage it. This doctrine originated in the idea that by marriage a husband and wife became one person with husband having all the rights. The common law did however protect wives by preventing a husband’s creditor from taking property owned “entirely” by both husband and wife as a fictional single person. By 1940 the Vermont legislature had passed a law ending the common law rule and establishing that wives had their own ownership rights which weren’t lost upon marriage. Citizens argued that since a wife was now a separate person by law, the old common law principle of a marital tenancy immune from creditors of only one of them was archaic and should be thrown out by the Supreme Court.
The Court disagreed. The concept of a tenancy by the entirety did not arise because of the common law treatment of women it ruled. Instead the common law created a way for married couples to own property such that each owned that whole of the property – that is each owns the entire property, not merely a portion of it subject to division based on their contribution to ownership. Thus such property could only be sold, or mortgaged if both joined in the deed. The legislative changes in the status of women did not change the ability of a married couple to hold title to land by the entireties. Hence, the Court ruled, unless Jan’s wife also signed a guarantee of the loan Citizens could not take the Ryegate house. Since the bank did not ask wife to sign the loan guarantee it was without recourse.
An interesting attempt by the banking industry to upset well settled rights of borrowers in order to collect bad loans made in an overheated economy when recession occurs. RBS, Citizens, formerly Citizens Bank of Rhode Island v Ouhrabka 2011 VT 86
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