Lender Liability to Debtors: Toward a Conceptual Framework
![handle is hein.journals/smulr40 and id is 797 raw text is: LENDER LIABILITY TO DEBTORS:
TOWARD A CONCEPTUAL FRAMEWORK
by
Werner F. Ebke*and James R. Griffin**
To pull one misshapen stone out
of the grotesque structure is
more likely simply to upset its
present balance between adverse
interests than to establish a ra-
tional edifice.I
ECENT years have witnessed a rapid increase in problem loans. In
response, banks2 and other commercial lending institutions3 in the
United States have used a number of workout practices4 to improve
or secure their position vis-A-vis their debtors. Such practices, however,
have come under increasing attack by debtors, shareholders, creditors, bank-
ruptcy trustees, and others. In the recent Texas case State National Bank v.
Farah Manufacturing Co. ,5 the plaintiff-debtor received a jury award of ap-
proximately $19 million in compensatory damages against a group of finan-
cial institutions as a result of an alleged conspiratorial course of tortious
Copyright 1986 by Werner F. Ebke and James R. Griffin.
* Referendar (J.D.), Doktor der Rechte (S.J.D.), University of Muenster School of Law;
LL.M., University of California at Berkeley (Boalt Hall). Assistant Professor of Law, South-
ern Methodist University School of Law.
** B.B.A., Texas Tech University; J.D., Southern Methodist University. Associate,
Jackson, Walker, Winstead, Cantwell & Miller, Dallas, Texas.
1. Michelson v. United States, 335 U.S. 469, 486 (1948) (Jackson, J.).
2. A bank is commonly defined as an institution that takes deposits and makes commer-
cial loans. See, e.g., Bank Holding Company Act of 1956, 12 U.S.C. § 1841(c) (1982). This
definition allows nonbanks to operate as long as they offer only one, not both, of these services.
The broad construction of the statute has permitted money market funds and nonbank giants,
such as American Express, Merrill Lynch Pierce Fenner & Smith Inc., and Sears Roebuck and
Co. to offer various financial services and to establish multistate banking units. For a general
discussion of the evolving definition of the term bank under the Bank Holding Company
Act see Felsenfeld, Nonbank Banks-An Issue in Need of a Policy, 41 Bus. LAW. 99, 108-11
(1985). As to the distinction between commercial banking and investment banking see Securi-
ties Indus. Ass'n v. Board of Governors, 104 S. Ct. 2979, 2984-86, 82 L. Ed. 2d 107, 114-16
(1984).
3. The term commercial lending institutions includes thrift institutions such as mutual
savings banks, savings and loan associations, and credit unions. See J. NORTON & S.
WHITLEY, BANKING LAW MANUAL § 1.0313] (1984).
4. For a general discussion of workouts see: Franklin, Pre-Bankruptcy Planning Issues
in Workout Situations, in 1 INST. ON FUNDAMENTALS OF COM. LENDING GG-I (Southern
Methodist University School of Law ed. 1985); Rosenberg, An Overview of Workouts from the
Perspective of the Institutional Lender, 16 Loy. U. CHI. L.J. 1 (1984).
5. 678 S.W.2d 661 (Tex. App.-El Paso 1984, writ dism'd by agr.).](ViewImageLocal?handle=hein.journals/smulr40&div=35&collection=&method=preview&ext=.png&size=3)
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Lender Liability to Debtors: Toward a Conceptual Framework
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