## Facts

- Robert and Margaret Parker, physicians, contracted in 1988 with a builder to construct a custom home on a lot they purchased in Montgomery County, Maryland.
- The Parkers obtained a combined land-acquisition and construction loan from Columbia Bank, administered primarily through a bank loan officer.
- The loan contemplated disbursement of proceeds in construction “draws,” with inspections and other conditions tied to disbursements under the loan documents.
- Construction problems arose; subcontractors and suppliers complained of nonpayment and contacted the bank.
- The Parkers alleged the bank disbursed funds contrary to the draw schedule, failed to perform proper inspections, and failed to protect them from the builder’s financial problems.
- The project stopped before completion and cost overruns exceeded the original budget.
- After the Parkers stopped making loan payments, the bank foreclosed; the circuit court later ratified the foreclosure sale over the Parkers’ exceptions.
- In a separate action, the Parkers sued the bank and related individuals for fraud, fraudulent concealment, negligent misrepresentation, negligence, breach of fiduciary duty, breach of contract, and civil conspiracy; the circuit court dismissed the claims.

## Issues

1. Whether the complaint adequately pleaded fraud or fraudulent concealment based on alleged misstatements or nondisclosure concerning the builder’s financial condition and the bank’s role in supervising construction.
2. Whether a construction lender owes a borrower a tort duty (negligence or negligent misrepresentation) to monitor construction, control disbursements for the borrower’s protection, or respond to subcontractor complaints beyond contractual undertakings.
3. Whether “special circumstances” transformed the lender–borrower relationship into a fiduciary relationship imposing duties of loyalty and disclosure.
4. Whether the bank breached the construction-loan agreement or an implied covenant of good faith and fair dealing by disbursing funds as it did and by not taking affirmative protective steps.
5. Whether the foreclosure sale should have been set aside or not ratified based on the borrower’s asserted lender-misconduct defenses and exceptions.

## Decision

- The appellate court affirmed dismissal of the Parkers’ tort and contract claims.
- The court held the lender–borrower relationship remained an arm’s-length commercial relationship and did not create a fiduciary duty on the pleaded facts.
- The court held Maryland’s implied duty of good faith in contracts requires good-faith performance of express contractual obligations and does not impose affirmative duties not contained in the loan documents.
- The court concluded the fraud-based counts failed because the alleged statements were not actionable misrepresentations of material fact and no duty to disclose was shown for fraudulent concealment.
- The court concluded negligence and negligent misrepresentation claims failed for lack of an independent tort duty beyond the contract.
- The court affirmed ratification of the foreclosure sale and rejection of the Parkers’ exceptions.

## Legal Principles

- A lender–borrower relationship is generally arm’s-length; a fiduciary duty arises only under rare “special circumstances” showing the borrower’s justified dependence and the lender’s domination or assumption of advisory control.
- Fraud requires a material misrepresentation of fact (or concealment where a duty to disclose exists), scienter, intent, justifiable reliance, and damages; generalized assurances or opinions typically are not actionable misrepresentations.
- Fraudulent concealment requires a duty to disclose, which ordinarily arises from a fiduciary/confidential relationship or when partial disclosure makes silence misleading.
- Negligence and negligent misrepresentation require an independent duty of care; a borrower cannot convert alleged contract nonperformance in loan administration into tort liability absent a recognized extra-contractual duty.
- The implied covenant of good faith and fair dealing obligates good-faith performance of contractual duties but does not require a lender to take affirmative actions not required by the loan documents, such as supervising construction for the borrower’s benefit.
- Foreclosure ratification will be upheld where the borrower’s asserted defenses depend on tort/contract theories that fail as a matter of law and no independent basis is shown to invalidate the sale.

## Conclusion

The court rejected expansive lender-liability theories in a construction-loan setting, holding the bank owed no fiduciary or extra-contractual good-faith obligations to supervise construction or protect the borrowers from the builder’s financial failures; because the pleaded tort and contract claims failed, the foreclosure sale was properly ratified.


Parker v. Columbia Bank, 91 Md. App. 346 (Ct. Spec. App. 1992)