The Status of Connecticut Law on the Fiduciary Duty of Lenders in Loan Transactions

• Pages: 363
• Publication year: 2021

Connecticut Bar Journal Volume 69.

69 CBJ 363. The Status of Connecticut Law on the Fiduciary Duty of Lenders in Loan Transactions

---

363

The Status of Connecticut Law on the Fiduciary Duty of Lenders in Loan Transactions

By ANN R. STRAVALLE-SCHMIDT (fn*)

I. INTRODUCTION

Due to the present economic climate, there has been a plethora of lender liability claims by borrowers premised on a fiduciary duty on behalf of a bank to a borrower in loan transactions, both commercial and consumer. As a general rule in all jurisdictions, however, there is no per se fiduciary duty of the lender to a borrower. (fn1)

As of early 1995, there are no Connecticut Supreme or Appellate Court decisions dealing directly with the parameters or existence of such a duty on behalf of a bank. A review of the general law of fiduciary duty on the appellate level of other jurisdictions and a review of the Connecticut Superior Court decisions shows that, as a general rule, there is no fiduciary duty on behalf of lenders to borrowers except under special circumstances.

II. PUBLIC POLICY BEHIND LACK OF PER SE FIDUCIARY DUTY

The public policy behind not imposing a per se fiduciary duty of business relationship between a lender (creditor) and borrower (debtor) has been stated as follows:

General contractual settings are inconsistent with an increased duty of utmost care, disclosure, and acting in the best interest of the opposing contracting party, as are found in fiduciary relationships .... Contracting parties are negoti

---

364

ating for their best business interest and if the negotiations are not satisfactory, either party may refuse the offer acceptance of contract considerations and promises. In a business relationship, including a borrower- lender relationship, where both parties are negotiating for a profitable contract, justifiable trust and confidence in the fiduciary duty of the opposing contractual party is difficult to prove

Joseph Norton and W Mike Baggett, I Lender Liability Law and Litigation, §203[61, at8-9 (199).

III. CONNECTICUT APPELLATE CASE Law

Although the Connecticut Supreme and Appellate Courts have yet to opine on this particular matter (fn2), they have defined a fiduciary duty as arising from a relationship between the parties that is considered to be so special and confidential as to create a reasonable justification for trust. Woroby v. Sibieth, 136 Conn. 352, 359 (1949). The...