Supreme Petroleum Company of New Jersey, L.L.C. v. Midlantic National Bank

A-419-97T5 and A-505-97T5 (N.J. Super. App. Div. 1999) (Unpublished)
  • Opinion Date: February 17, 1999

LOANS; LENDER LIABILITY—A lender that makes credit checks of a leasing company’s customers as part of the lender’s decision to lend to the leasing company is not liable to the leasing company for negligence in determining the creditworthiness of those customers.

A bank provided financing for an automobile leasing company in connection with the leases made to its customers. In general, the leasing company lined up the proposed lease (or sometimes a proposed sale). It then contacted the bank which, if it approved the creditworthiness of the customer, would provide the leasing company with funds to purchase the automobile to be leased to its customer. The bank reserved the right to reject any proposal. The leases served as the bank’s security for the loans. In addition, the leasing company and its owners guaranteed payment of the loans. After several good years, a number of lessees defaulted. The bank sued the leasing company and its owners on their guaranties. In defense, the leasing company and its owners claimed that the bank had undertaken the responsibility for conducting credit checks in making creditworthiness determinations about prospective lessees. Thus, the guarantors claimed that under the terms of their contract with the bank and pursuant to the implied covenant of good faith and fair dealing, the bank had an obligation to conduct those credit checks with due care and diligence, which the bank did not do. The Court, however, held that whatever burdens the bank had undertaken respecting credit checks and creditworthiness determinations were undertaken for the bank’s own benefit and not for the leasing company. It found no contractual obligation for the bank to perform those services and also found that the leasing company’s argument did not properly implicate an implied covenant of good faith and fair dealing.