Question # 3 (True/False) If a corporate loan agreement contains a provision that includes as an event of default any change in the management or control of the borrower and the lender declares a default upon learning of the sale of the corporation, a stockholder may use the provision as the basis of a lender liability lawsuit.
Answer: True
Interference with corporate governance has been the basis of some lender liability actions. Corporations are owned by stockholders, overseen by boards of directors elected by the stockholders, and run, on a daily basis, by management hired by the board. If a lender attempts to usurp the authority, which should be exercised by the directors, management or stockholders of the corporation, the lender could be deemed to be interfering with corporate governance.
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Question # 4 (True/False) A negligent or fraudulent response to a credit inquiry may be the basis of a lender liability lawsuit.
Answer: True
Even though a financial institution is under no obligation to requests for credit information regarding a customer and may as a matter of policy not do so unless it has the consent of its customer, if the a response it given, the institution must respond truthfully and accurately.
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Question # 6 (True/False) If a commercial loan agreement contains a demand clause, the lender can always utilize the clause because the borrower agreed to the terms when the loan agreement was signed by the borrower.
Answer: False
Courts have frowned on the use of a demand note feature in a commercial loan agreement. The sudden unannounced withdrawal of funding can precipitate the failure of a business. It is prudent, in most circumstances, for the lender to give the borrower advance notice of the termination of the borrower's line of credit to allow the borrower to arrange other financing.
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Question # 7 (True/False) If a financial institution repeatedly accepts late loan payments or pays overdrafts on a customer's account, the institution may need to notify the customer before deviating from the established pattern.
Answer: True
Even if a written loan agreement or deposit agreement provides otherwise, a financial institution may be held liable for damages if the customer has come to rely on the institution's established course of business.
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Question # 8 (True/False) Damages awarded in a lender liability lawsuit are limited to actual damages proven plus interest on that amount from the date of the action that caused the damage.
Answer: False
In some cases, a borrower has contended the financial institution acted in bad faith. The courts have held bad faith involves deliberate, willful wrongdoing on the part of the lender and if proven may form the basis for an award of punitive damages that could greatly exceed the amount of actual damages.
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