It is not unusual for the customer of a bank to list the bank as a reference when attempting to obtain and expand the customer’s business. The 2002 Illinois case Schrager v. North Community Bank provides an example of why bank personnel must use caution when discussing its client in such a situation.
Barry Schrager (“Schrager”) had been approached by two real estate developers for a guaranty of the developers’ loans to North Community Bank (“NCB”) for real estate projects. As part of their efforts to persuade Schrager to guaranty the developers’ loans, Schrager and the developers scheduled a meeting with two NCB officers. Schrager asked the bank president and CEO what they could tell him about the developers. The bank officers stated the developers were “excellent real estate developers, very good customers of the bank, and very good business men (sic).”
At the time the statements were made, the officers knew: 1) one of the developers had filed bankruptcy; 2) the developers’ account for the project had been overdrawn numerous times, sometimes in amounts in exceeding $10,000; and 3) the real estate project could not proceed because of disputes with the building's condominium association and with the zoning authorities of the City of Chicago. Schrager later discovered the project had no value and filed suit against NCB and the officers for negligence and fraud, asserting he had relied on the bank officers’ statements when agreeing to guaranty the developers’ loans.
In holding Schrager could proceed to trial on a negligent misrepresentation claim, the court found that while the general rule provides that the expression of an opinion is not actionable, an exception exists when the party states the matter as a fact without classifying the statement as an opinion. The form of the statement is not controlling, but the sense in which the statement is understood determines whether the statement is actionable. Thus, since Schrager knew NCB and its officers were the developers’ bankers and the officers had actual detailed knowledge the developer’s financial condition, the trial court could determine that statements were factual affirmations of the developers’ “business acumen” and success, not opinion. Such statements form the basis for a negligent misrepresentation claim.
The trial court also found that Schrager could proceed to trial on a fraudulent misrepresentation claim. While Schrager’s relationship with the officers was not fiduciary in nature, the court found there were sufficient facts to establish a special relationship existed. Schrager’s meeting with the officers for the purpose of discussing the developers and their project and the officers’ superior knowledge of the same could allow the trier of fact to conclude the officers entered into a relationship of confidence and trust with Schrager giving rise to a justifiable reliance by Schrager on the officers’ statements. Thus, the officers’ statements could provide Schrager with a false sense of security regarding his business dealings with the developers, which may have inhibited Schrager from conducting his own due diligence. Such a relationship would trigger a duty to accurately disclose facts to Schrager regarding the developers’ business experience and financial condition.
All bankers should familiarize themselves with the holding of the Schrager case so they avoid making inaccurate and inflated statements on behalf of customers.