This essay Fiduciary Duty has a total of 2123 words and 9 pages.
A fiduciary relationship is defined as a relationship in which one person is under a duty to act for the benefit of another on matters within the scope of the relationship. A fiduciary is defined as a person who is required to act for the benefit of another person on all matters within the scope of their relationship.
In the seminal case Garrett v. Bankwest, Inc., the Supreme Court of South Dakota held that a fiduciary relationship exists between a lender and a borrower only if, (1) the borrower reposes faith, confidence, and trust in the lender, (2) the borrower is in a position of inequality, dependence, weakness, or lack of knowledge, and (3) the lender exercises dominion, control, or influence over the borrower?s affairs. All three of the elements must exist in order to establish a fiduciary duty between a lender and a borrower. The court also held that the relationship between a lender and borrower is generally viewed as a debtor-creditor relationship which imposes no special or fiduciary duties on a bank.
The courts have generally ruled that when a fiduciary duty does exist, it is because the relationship between the lender and the borrower goes beyond typical contractual agreements.
The majority of cases in Alabama show that the courts hold that lenders do not owe a borrower a fiduciary duty out of a basic creditor-debtor relationship.
In Lee v. United Fed. Sav. & Loan Ass?n, the purchasers of a house brought action against a savings and loan association claiming fraud and deceit in connection with their purchase. The buyers applied for and received a loan from the United Federal Savings and Loan Association to purchase a house. After purchasing the house, the buyers found several structural problems and went to United Federal concerning them. United Federal referred the buyers to the firm that had inspected the house, and they then learned that the inspection report written prior to the purchase had identified the structural issues. The buyers filed suit against United Federal and others claiming that they had established ?a confidential relationship, or special circumstances between the parties, under which the law imposed a duty on United Federal to disclose all material information it possessed about the condition of the house.? The court ruled that that just because a financial institution lends money for the purchase of a house, it does not create a confidential relationship which imposes a duty to disclose facts at their disposal (even if they have knowledge of defects in the house). The court stated that, ?We decline to recognize any such duty between United Federal and the Lees (the buyers) under the facts presented, which indicate to us an arm?s length transaction. Absent a confidential relationship, no duty to disclose exists?? The court determined that only a debtor-creditor relationship existed and the circumstances do not create a confidential relationship. Therefore, the lender owed no fiduciary duty to the borrower.
In McIntyre Electric Serv., Inc. v. SouthTrust Bank of Mobile, McIntyre Electric filed suit against SouthTrust Bank after the bank cancelled the company?s credit and demanded payment on all outstanding loans. McIntyre Electric had conducted business and borrowed money from SouthTrust for eight to nine years prior to filing suit. In 1980 and 1981 the company experienced financial difficulties, was extended credit by SouthTrust and was assured that the bank would ?stand behind McIntyre financially in order that McIntyre Electric might reach financial stability.? McIntyre had contemplated going out of business but had decided to continue operating after receiving the commitment from SouthTrust. In their argument to the court, McIntyre asserted that those circumstances created a fiduciary relationship with SouthTrust. The court ruled that only a debtor-creditor relationship existed and that SouthTrust had no control or influence over McIntyre?s business except as a creditor. In this case, even though the lender had pledged to help the borrower remain in business, a relationship establishing fiduciary duty did not exist.
Another case which addresses fiduciary duty is Ex parte Ford Motor Credit Co. In this case, the buyer of an automobile filed suit against the automobile dealership and the credit company when he learned of the existence of a commission on his loan between the two. The buyer claimed that the dealership and the credit company owed him a duty to disclose the commission based on their relationship to him as lenders and that
Topics Related to Fiduciary Duty
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