When Can You Trust Your Bank?
In the recent N.J. Appellate Division opinion of UJB v. Kensey, the court held that typically, a bank does not have a fiduciary relationship with a customer that requires the bank to disclose information within its files, such as an appraisal, concerning the financial viability of the transactions their potential loan customers are about to enter into.
In Kensey, the borrower purchased properties (miniature golf courses) already financed by the bank, from another bank customer who was in financial distress. When the prior customer defaulted on the loans and sought to sell out, the borrower alleged that an employee of the bank was assisting the seller in “working out” his debt at the time that the borrower was negotiating financing with the bank to purchase the properties. In effect, the borrower claimed, the bank was encouraging the sale to substitute a healthy debtor in the place of a financially ailing one. The borrower also asserted that the bank was obligated to disclose an appraisal valuing the properties at significantly less than the purchase price and the loan amount.
The borrower/purchaser was a physician and a sophisticated investor. Although he knew that the bank had an appraisal of the properties, he never requested it. Instead, according to his claim, he assumed that banking laws made it illegal for a lending institution to lend more than 100% of the value of the property financed.
The court first noted the general rule that there is no presumed fiduciary relationship between a bank and its customer. Where as here the underlying information is readily accessible to the borrower, who can perform his own appraisal, there is no sound basis to impose on the bank the duty to investigate the property and supply that information to the borrower.