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

Lender Liability and the Duty of Good FaithI. entreFrom time to time, adders and their attorneys announce that bestower liability is no longer an discharge with which the lending community needs to be concerned. What usually prompts this proclamation of the cobblers last of lender liability is a recent case in which a court has summarily rejected a borrowers claim that the lender violated the duty of entire organized religion and fair dealing. Many courts pay off 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 commonwealth 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 set out hence engaged in conduct that constitutes bad faith. Most courts carefully judge the unique facts of each case, consider the testimony of experts, and listen to the ever-inventive ar guments of counsel. A loan agreement, like every other contract governed by the Uniform commercial message Code (the U.C.C.), imposes on both the borrower and the lender an obligation of good faith in its execution of instrument or enforcement. This simple good faith murder 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. both(prenominal) courts have been quick to hold that, under certain circumstances, a lender, which believed it was barely 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 upgrade funds under a loan agreement, which specifically and uniquely permitted the lender to exercise sole and absolute discretion to re fuse to advance additional funds. 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 differentiate does not need a good faith reason or any reason at all to demand payment.