The Rural Voice, 1993-02, Page 18Agrilaw
Private information should stay private
When you talk to your bank mana-
ger about obtaining a loan to buy a
business, piece of equipment or prop-
erty, do you expect that information to
be kept confidential? Of course. Do
you expect the bank manager to use
that information for personal financial
gain or to relate that information to
other customers who may be interested
in the same opportunity? Of course
not.
However, that is exactly what
happened to an Ontario couple and the
case ended up in court.
The wife, who worked in a snack
bar in a mall, was told by the owner
that the snack bar was for sale. The
owner owned both the snack bar and
another restaurant in the same
complex. The owner wanted to sell
both businesses.
After discussing the opportunity
with her husband, the wife approached
the owner of the snack bar who told
her it was for sale for $30,000. The
couple used the bank branch located in
the same mall. The husband approach-
ed their bank manager about obtaining
financing to purchase the business.
The husband told the bank mana-
ger that he and his wife were thinking
about buying the
snack bar and
showed him
their calculation
of the anticipa-
ted profits. He
indicated the
asking price was
$30,000, but that
he had hoped to
be able to get it
for $20,000 to
$23,000.
No loan ap-
plication was
made at that
time. The bank
manager
instructed the husband to "get the
figures and we will work it out. I
don't foresee too many problems."
The snack bar subsequently sold —
to the bank manager's wife. In the
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subsequent court proceedings, the
bank manager testified that the rest-
aurant and snack bar's owner had also
approached him and asked if he was
aware of anyone who might be inter-
ested in purchasing both operations.
Shortly after that, the bank manager
spoke to an old friend and arranged a
meeting with the owner.
The friend eventually submitted an
offer for the licensed restaurant only.
The agreement made no reference to
the snack bar. The bank manager tes-
tified that his friend agreed to advise
the owner that a verbal option would
be granted to the manager's wife.
The bank manager's wife then sub-
mitted an offer to purchase the snack
bar for $20,000 payable over one year.
It was accepted and she acquired the
business through a numbered company
in which she owned all of the shares.
The trial judge held that the relation
between a bank and its customers is a
confidential one which requires that a
bank manager not use information
received from a customer to his or her
own advantage. The bank manager
was in breach of that duty by failing to
disclose his interest (or that of his
wife) to the bank's customers.
The bank, as the bank manager's
employer, was responsible for his act-
ions. The Court ordered an account-
ing of the profits of the snack bar up to
the date of judgement, and then
assessed damages based upon the
balance of the term of the lease on the
snack bar and the likelihood of a sale
by the bank manager's wife.
As a lending institution, banks have
a tremendous opportunity to know in
advance what business or opportuni-
ties are available, and at what price.
The Court very clearly stated in this
decision that the bank may not misuse
this information for its own benefit or
for the benefit of any of its employees,
directly or indirectly.0
Agrilaw is a syndicated column produced by
Cohen Highley Vogel & Dawson, a full service
London law firm. Russell Raikes, a partner in
the firm, practises in the area of commercial
litigation, including land disputes. Agrilaw is
intended to provide information to farmers on
subjects of interest and importance. The opin-
ions expressed are not intended as legal advice.
Before acting on any information contained in
Agrilaw, readers should obtain legal advice with
respect to their own particular circumstances.