CURRENT THEORIES OF LENDER LIABILITY

1. LENDER LIABILITY IN A CHANGING BUSINESS ENVIRONMENT AND DEPRESSED ECONOMIC TIMES 2
   1. ATTITUDES OF JUDGES AND JURIES - RECENT HISTORICAL PERSPECTIVE 2
      1. BEFORE STATE NATIONAL BANK V. FARAH MANUFACTURING CO. 3
      2. AFTER FARAH 3
      3. BORROWER WITH NO RISK 3
      4. POLICY ISSUES V. LEGAL AND FACT ISSUES 4
      5. FIDUCIARY DUTY OF LENDER 5
   2. ATTITUDE OF LENDERS 6
      1. LENDERS' RELATIONSHIPS WITH BORROWERS AT VARIOUS STAGES OF CREDIT - INCEPTION, PERFORMANCE AND COLLECTION 6
      2. COMMUNICATE BASIC CONCEPTS 7
      3. ATTITUDE OF COOPERATION AND SYMPATHY VS. ARROGANCE, SUPERIORITY AND PERSONAL ANIMOSITY 7
      4. LENDERS' ACTIONS JUDGED BY INDUSTRY STANDARDS 8
      5. BOTTOM LINE ECONOMIC REALITY 9
      6. MITIGATION OF DAMAGES 9
2. FACTUAL PATTERNS OF LENDER LIABILITY 10
   1. WRONGFUL DECLARATION OF DEFAULT AND PROCEEDING WITH COLLECTION WITHOUT DEFAULT 10
   2. FAILURE TO FUND 11
   3. INTERFERENCE WITH CONTRACT OR CORPORATE GOVERNANCE 12
   4. MISREPRESENTATION OF FINANCIAL CONDITION OF BORROWER 12
   5. FAILURE TO RELEASE LIEN 13
   6. "AGENTS'" ACTS BINDING LENDERS 13
3. DEFAULT PRIOR TO PURSUIT OF BORROWER OR LIQUIDATION OF COLLATERAL 14
4. MATURING DEBT 14
   1. DEFAULT DEFINED BY DEBT INSTRUMENT, SECURITY AGREEMENT, DEED OF TRUST, OR LOAN AGREEMENT 14
   2. DEMAND NOTE 16
   3. TERM NOTE 20
   4. INSTALLMENT NOTE AND ACCELERATION 21
   5. OPTIONAL OR AUTOMATIC ACCELERATION 23
   6. DEMAND FOR PAYMENT AFFORDING AN OPPORTUNITY TO CURE 24
   7. NOTICE OF INTENT TO ACCELERATE 25
   8. NOTICE THAT THE DEBT HAS BEEN ACCELERATED 27
   9. WAIVER OF ACCELERATION REQUIREMENTS 28
   10. WAIVER OF WAIVER 31
   11. DEFENSES TO ACCELERATION 32
   12. CLAUSE PROVIDING FAILURE TO ACCELERATE NOT WAIVER OF RIGHT TO ACCELERATE FOR SUBSEQUENT DEFAULT 34
   13. CURING NOTICE OR WAIVER PROBLEM 35
   14. CONTRACTUAL AND STATUTORY ACCELERATION REQUIREMENTS 36
5. LIQUIDATING COLLATERAL PURSUANT TO CONTRACT DOCUMENTS, STATUTORY REQUIREMENTS, AND COMMON LAW 37
   1. REAL PROPERTY FORECLOSURES 37
   2. PERSONAL PROPERTY FORECLOSURES 38
6. STRICT COMPLIANCE WITH CONTRACT DOCUMENTS 38
7. CONTRACT ACTIONS VS. TORT ACTIONS 40
   1. BIG DOLLARS, BIG EXPOSURE 41
   2. GOOD GUY V. BAD GUY / BIG GUY V. LITTLE GUY 41
   3. WHO IS NOT PAYING - BORROWER OR LENDER 42
   4. LENDERS HELPING LENDERS 42
   5. MITIGATION OF DAMAGES 42
8. DEVELOPING LENDER LIABILITY TORTS 43
   1. FRAUD 43
      1. ELEMENTS OF FRAUD 43
      2. REPRESENTATION MUST BE OF MATERIAL FACT - NOT AN OPINION, JUDGMENT, PROBABILITY OR EXPECTATION 44
      3. REASONABLE RELIANCE 44
      4. PARTY EXECUTING DOCUMENTS CHARGED WITH KNOWLEDGE OF CONTENTS 44
      5. PROMISE TO ACT IN THE FUTURE NOT ACTIONABLE UNLESS NO PRESENT INTENT TO PERFORM 45
      6. PROMISE TO DO A CRIMINAL ACT 45
      7. CONDITIONAL PROMISE NOT ACTIONABLE UNLESS CONDITION SATISFIED 45
      8. AUTHORITY OF PARTY MAKING REPRESENTATION 46
      9. PAROL EVIDENCE EXCLUSION OF ORAL REPRESENTATIONS THAT VARY OR CONTRADICT THE TERMS OF A WRITTEN AGREEMENT 46
      10. COURSE OF DEALING WILL NOT VARY OR CONTRADICT WRITTEN AGREEMENT 46
   2. DURESS 47
      1. ELEMENTS 47
      2. ECONOMIC DURESS ONLY WHERE THREATENING PARTY WAS RESPONSIBLE FOR CLAIMANT'S FINANCIAL CONDITION 48
      3. DURESS ONLY WHERE THREATENING PARTY HAS NO LEGAL RIGHT TO TAKE THREATENED ACTION 48
      4. STATEMENT OF LEGAL OPINION WHERE RECIPIENT HAD ACCESS TO LEGAL COUNSEL IS NOT DURESS 49
   3. TORTIOUS INTERFERENCE 49
      1. ELEMENTS 50
         1. INTERFERENCE WITH CONTRACT 50
         2. INTERFERENCE WITH FUTURE CONTRACTS 50
      2. RIGHT TO INTERFERE 50
      3. INTERFERENCE WITH CORPORATE GOVERNANCE 51
   4. FIDUCIARY DUTIES 51
   5. PRIMA FACIE TORT 52
   6. GOOD FAITH AND FAIR DEALING 53
      1. GOOD FAITH UNDER TRADITIONAL CONTRACT LAW 53
      2. UCC SECTION 1.203 DUTY OF GOOD FAITH FOR PERFORMANCE OR ENFORCEMENT 54
      3. UCC SECTION 1.208 ACCELERATION OF DEBT 55
      4. GOOD FAITH AND FAIR DEALING WILL NOT IMPOSE A DUTY CONTRARY TO EXPRESS CONTRACT TERMS 55
      5. GOOD FAITH AND FAIR DEALING ARISING OUT OF SPECIAL RELATIONSHIP 56
      6. NO GOOD FAITH DEALING ARISING OUT OF PROMISE TO NEGOTIATE IN THE FUTURE - IF NO CONTRACT, NO IMPLIED OBLIGATION OF GOOD FAITH AND FAIR DEALING 56
   7. PROXIMATE CAUSE 57
   8. DAMAGES 58
   9. PUNITIVE DAMAGES 59
9. BORROWER COMMON LAW AFFIRMATIVE RECOVERY V. BANKRUPTCY EQUITABLE SUBORDINATION 59
   1. ELEMENTS OF EQUITABLE SUBORDINATION 60
   2. FRAUD 60
   3. CONTROL 61
   4. EQUITABLE CONSIDERATIONS 63
10. LIABILITY TO THIRD PARTY CREDITORS V. LIABILITY TO BORROWER 63
    1. LIABILITY TO THIRD PARTY CREDITORS 63
    2. LIABILITY TO BORROWER 64
11. DECEPTIVE TRADE PRACTICES ACT LIABILITY 64
    1. EXTENSION OF CREDIT NOT SALE OR LEASE OF GOODS OR SERVICES UNDER THE DTPA 65
    2. EXERCISE OF LEGAL RIGHTS NOT A DTPA VIOLATION 65
    3. MERE BREACH OF CONTRACT NOT A DTPA VIOLATION 66
    4. DTPA REQUIRES FINDING OF A DECEPTIVE ACT WHICH IS THE PRODUCING CAUSE OF THE CONSUMER'S DAMAGE 66
    5. NO DTPA VIOLATION WHERE COMMON LAW DAMAGES NOT PROPERLY PROVED 67
12. LENDER LIABILITY TO THIRD PARTIES IN THE CONSTRUCTION AREA 67
    1. THE PARTIES 67
    2. TYPICAL DOCUMENTS 68
       1. CONSTRUCTION LOAN AGREEMENT 68
       2. PROMISSORY NOTE 70
       3. DEED OF TRUST 70
       4. OWNER'S ASSIGNMENT TO LENDER OF OWNER'S RIGHTS UNDER THE CONSTRUCTION CONTRACT AND OF OWNER'S RIGHTS UNDER THE OWNER/ARCHITECT AGREEMENT 70
       5. CONSENT OF ARCHITECT TO ASSIGNMENT OF OWNER'S RIGHTS TO LENDER UNDER THE OWNER/ARCHITECT AGREEMENT 70
       6. CONTRACTOR'S CONSENT TO ASSIGNMENT OF CONSTRUCTION CONTRACT TO LENDER AND CONTRACTOR'S SUBORDINATION OF LIENS 71
    3. PROBLEMS THAT MAY ARISE THAT AFFECT CONTRACTOR'S ABILITY TO COLLECT MONIES DUE FROM THE OWNER 72
       1. OWNER'S DEFAULT 72
       2. OWNER DIVERTS FUNDS 72
       3. INSUFFICIENT LOAN PROCEEDS 72
    4. CLAIMS OF LENDER LIABILITY 73
       1. CLAIMS OF EQUITABLE SUBORDINATION 73
       2. CLAIMS OF EQUITABLE LIENS 75
       3. CLAIMS OF FIDUCIARY RELATIONSHIP 77
       4. OTHER CLAIMS BY CONTRACTORS--FRAUD, NEGLIGENCE 78

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