In re Lough

In 1973, Bette Mae Lough (debtor) and her husband signed a joint promissory note reflecting money owed to the Peoples Bank & Trust of Alpena (the bank) (creditor). In 1981, Bette Mae’s husband executed a promissory note reflecting his sole obligation to the bank for roughly $135,000. The bank claimed that the note had been guaranteed by Bette Mae based on an open-ended guaranty that she signed in 1967. In or around 1986, the bank filed an involuntary-bankruptcy petition against Bette Mae under 11 U.S.C. § 303. The bank alleged that Bette Mae had fewer than 12 creditors and was not paying her debts as they became due. Bette Mae denied liability on the bank’s claims. With respect to the 1973 note, Bette Mae asserted that the note was secured by a mortgage on property that she and her husband had held jointly, that the property had been deeded to the bank in lieu of foreclosure, and that the bank had improperly applied the proceeds from the foreclosure sale to her husband’s sole debt instead of to the couple’s joint debt. Bette Mae and the bank stipulated that the Loughs’ former lawyer would testify that the Loughs wanted the sale proceeds of the property applied to their joint debt. With respect to the 1981 note, Bette Mae contended that she never meant for her 1967 guaranty to extend to a $135,000 debt in a note executed 14 years later. Bette Mae noted that when she signed the guaranty, her husband owed only $20,000. Bette Mae further asserted that there was no consideration for the guaranty and that the bank had not relied on it. The bankruptcy court considered the parties’ arguments.