Law Q&A: Don’t count on your banker for protection

Q: A while back, I borrowed money from the bank to buy some real estate. The initial interest rate was very low, but it was adjustable. The interest rate has increased and I can not afford the payment. I think my banker should have warned me. Do I have a claim against the bank for breach of fiduciary duty?

A: Under Florida law, in an arms-length borrowing transaction, the bank does not owe the borrower a fiduciary duty. Florida courts have upheld a fiduciary duty only arises where there is a fiduciary relationship. A fiduciary relationship involves some degree of dependency on one side and some degree of undertaking on the other side to advise counsel and protect the weaker party.

Borrowing transactions are generally arms-length, so there is no duty imposed on either party to protect the other. To say it another way, a fiduciary relationship arises where confidence is justifiably placed by one party in another and the other party accepts the duties arising from that confidence. A fiduciary relationship can also be created by contract, such as when a principal hires an agent to represent him. Loan circumstances do not generally involve a contract creating a fiduciary relationship between bank and borrower.

A typical direct bank-borrower case is Watkins v. NCNB National Bank. In Watkins, the bank sued Watkins for failure to repay a loan that Watkins used to buy units in a limited partnership formed to purchase, manage and resell a shopping center.

Watkins borrowed the money and bought the limited partnership units after reading a placement memorandum which specified that if 14 units were not sold by July 1, 1986, the monies would be refunded to the initial investors. NCNB was also the escrow agent, under an agreement with the limited partnership, to hold purchase monies in escrow and to refund them to the purchasers if 14 units were not sold by the deadline. NCNB allegedly terminated escrow and disbursed the money to the limited partnership, even though it did not meet the 14 unit sale requirement.

The court held that NCNB did not owe Watkins a fiduciary duty. Under its lender/borrower relationship, no fiduciary duty was created. Under its escrow contract, it only owed a duty to the limited partnership. Watkins’ claims were rejected and the court entered judgment for the bank.

Despite numerous Florida cases that hold a bank owes no fiduciary duty to a borrower in a normal lending relationship, a bank can have a fiduciary relationship if circumstances warrant. For example, where a bank convinces customers to buy houses in a development where the bank had a large loan, even though the bank knew the development was in serious trouble, borrowers were held to have a valid claim for breach of duty by the bank. In those cases, the bank was guilty of self-dealing, trying to get borrowers to buy property from a customer so the other customer could repay its loan, even though the bank knew that the borrowers were buying into trouble.

In Capital Bank v. MVB, Inc., a borrower was induced by the bank loan officer to buy malfunctioning equipment from another bank borrower who was on the verge of bankruptcy. The court found that the bank loan officer led the buyer to believe that there was a relationship of trust and that the borrower could rely on the officer, who urged the purchase. The bank breached its fiduciary duty by taking unfair advantage of the borrower and not acting in the best interest of the borrower where it induced purchase of the malfunctioning equipment, knowing that the seller’s business was weak and that the equipment malfunctioned.

Although claims by borrowers against banks based on fiduciary duty will generally fail in the normal lending situation, other claims may prove viable. Such claims may include fraud or breach of contract. Accordingly, you would be well advised to consult with an experienced attorney about the facts of your particular situation without delay. You may have a claim with pursuit, even if it not for breach of fiduciary duty.

Questions for this column can be sent to: William G. Morris, e-mail: or by fax at 642-0722 or by mail to the Marco Eagle, attention: Don’t count on your banker to protect you. Other articles of interest can be viewed at our Web site,

William G. Morris is an attorney with offices at 247 North Collier Boulevard. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.

© 2009 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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