Lender Liability and the Duty of Good Faith :: essays research papers

Lender Liability and the Duty of Good FaithI. ingressFrom time to time, adders and their attorneys announce that lender liability is no longer an divulge with which the lending community needs to be concerned. What usually prompts this proclamation of the end of lender liability is a recent case in which a court has summarily rejected a borrowers claim that the lender violated the duty of cheeseparing combine and fair dealing. Many courts present rejected borrowers lawsuits which are based on allegations of the violation of the lenders duty of good faith. Nevertheless, lender liability should continue to be an realm of concern to lenders.Although courts often dismiss cases based on a borrowers claims of lender bad faith, in other cases courts find that lenders pick out and so engaged in conduct that constitutes bad faith. Most courts carefully understand the unique facts of each case, consider the testimony of experts, and listen to the ever-inventive arguments of couns el. A loan agreement, like every other contract governed by the Uniform commercial-grade Code (the U.C.C.), imposes on both the borrower and the lender an obligation of good faith in its writ of execution or enforcement. This simple good faith slaying obligation may appear to be an uncontroversial codification of a basic, minimal standard of human behavior. It is proving, however, to be problematic to commercial lenders. close to courts have been quick to hold that, under certain circumstances, a lender, which believed it was scarcely exercising its contractual rights, nevertheless may have breached the duty of good faith performance obligation. For example, in 1985 the Sixth Circuit, invoking the good faith performance obligation, affirmed a jury verdict awarding $7,500,000 to a borrower whose lender refused to impart funds under a loan agreement, which specifically and uniquely permitted the lender to exercise sole and absolute discretion to refuse to advance additional fun ds. The Alaska Supreme Court, likewise invoking the good faith performance obligation, held that a borrower could recover both actual and punitive damages from a lender who had taken possession of collateral without notice, notwithstanding the unambiguous terms of the loan and security agreement authorizing such repossession. On the other hand, many courts have abandoned the imposition of good faith obligations on the lender beyond what is set forth in certain loan agreements. In 1987, the bankruptcy Court for the District of Massachusetts held that the holder of a demand timbre does not need a good faith reason or any reason at all to demand payment.