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Donleavy v. Casey

A-1378-05T1 (N.J. Super. App. Div. 2006) (Unpublished)

LOANS; FIDUCIARY DUTY—The interested parties on the opposite of a loan transaction are inherently adversarial and, therefore, there is no fiduciary duty on the part of the lender to its borrower.

A woman relied on a financial advisor for many years. A time came when the advisor suggested that the woman take a mortgage loan to assist with certain house repairs and for her daughter’s anticipated wedding. At first, the woman did not believe that she had the ability to repay a loan, so she demurred. Her advisor prevailed upon her, “assuring her that her income would be sufficient.” She submitted her loan application to a bank where her only prior relationship had been that she opened a small certificate of deposit “some years earlier when it had opened a local branch.” The bank would not lend as much money as she asked for, but agreed to lend about one-third of that amount. Her advisor, “together with certain bank personnel, revised the loan application by ‘grossing up’ [her] income. [Her advisor] also included in the application a statement that [his client] intended to take an annual withdrawal” from her Individual Retirement Account. Apparently, the woman had no such intent.

As a result of these changes, meaning that the woman “had a significantly greater income stream available to her than was in fact the case,” the bank doubled the size of the loan it was willing to offer. The woman signed the loan application papers, even though “[s]he had no direct dealings with the bank and was not aware of the contents of the application.” The loan proceeds were delivered to her financial advisor. About a year after the loan closed, the woman “learned that the Attorney General of New Jersey had commenced an action against [her financial advisor], alleging that he violated New Jersey’s securities laws.” She never recovered her money from her advisor and she still owed the money to the bank.

In a suit against her advisor and the bank, she obtained a default judgment against her advisor, but was not as successful in her claims against the bank. She was seeking to have her home equity loan rescinded based upon “inaccuracies and misrepresentations contained in the loan application.” She claimed that “the loan was the product of a material mistake on the bank’s part.” She lost. Both the lower court and the Appellate Division pointed out that, “[t]o recover under a negligence theory, it is paramount that a defendant first owe the plaintiff a duty.” Here, according to the Appellate Division, “[t]he relationship between [the woman] and the bank, however, was that of debtor and creditor, and they thus dealt with each at arms’ length.” The Court further pointed out that “the interests of the parties on the opposite side of a loan transaction are inherently adversarial: the lender wishes to obtain the greatest security and the highest interest rate while the borrower seeks to obtain the greatest amount of money at the lowest cost. ‘[I]t would be anomalous to require a lender to act as a fiduciary for interests on the opposite side of the negotiating table because their respective positions are essentially adversarial.” Further, the Court found that, “in all of his dealings with [the bank, the financial advisor] was acting as [the woman’s] agent, not [as] the agent of [the bank].” Consequently, the Court found nothing that would enable it to conclude that the bank should have been held responsible for the woman’s financial advisor’s actions.

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