Appeal from the Iowa District Court for Winnebago County, Bryan H. McKinley, Judge.
The opinion of the court was delivered by: Vaitheswaran, J.
A bank contends that the district court erred in finding in favor of a borrower on his counterclaims for breach of fiduciary duty and fraud after he was sued by the bank to recover an unpaid balance on a loan. AFFIRMED.
Heard by Eisenhauer, C.J., and Vogel and Vaitheswaran, JJ.
We must decide whether the district court erred in finding in favor of a bank borrower on his counterclaims for breach of fiduciary duty and fraud.
I. Background Facts and Proceedings
Clemence Weber bought, improved, and sold properties for a living. He banked at Manufacturers Bank & Trust in Lake Mills, Iowa. Weber knew the community president of the bank, Randall Finer, and extended a personal loan to him in 2003. Weber also knew and did business with James Wangsness, another customer of the bank.
In 2007, Finer suggested Weber borrow $150,000 from the bank and use the money to assist Wangsness with the improvement of certain properties. Finer made the suggestion because Wangsness was reaching his borrowing capacity with the bank. Weber agreed to the transaction.
Weber's bank loan was reflected by a signed promissory note. The note was secured by "the collateral pledged on Mortgage(s) executed by Borrower and Guarantor(s), if any, including, but not limited to, said Mortgage(s) dated 11/30/05, 4/13/08, 8/1/08, and 7/18/07." The listed mortgages were not on property owned by Weber but on properties owned by Wangsness. Wangsness executed a hypothecation agreement with the bank authorizing these mortgages to be pledged as collateral for the $150,000 note. *fn1
According to Wangsness, he and Weber separately agreed that Wangsness would pay a portion of the principal, would keep the interest on Weber's note current, and would pay Weber $5000 for each property that was improved with loan proceeds provided by Weber. Wangsness testified that this oral agreement was finalized in Finer's presence. Finer stated that he was aware of the agreement but was not involved in consummating it.
Weber defaulted on the note and the bank sued him to recover the unpaid balance. Weber raised several affirmative defenses and counterclaims, among them breach of fiduciary duty and fraud claims. Following trial, the district court found in favor of Weber on these counterclaims. The court dismissed the bank's petition, finding Weber's signature on the note was not voluntary. On appeal, the bank contends the court's ruling was erroneous.
As a preliminary matter, the parties disagree on our scope of review, with the bank contending it is de novo and Weber contending it is at law. As the case was styled a law action and was tried as a law action, with the court ruling on objections, we conclude our review is on error. In re Matter of Mt. Pleasant Bank & Trust Co., 426 N.W.2d 126, 129 (Iowa 1988). The court's fact-findings bind us if supported by substantial evidence. Id.
III. Breach of Fiduciary Duty
"[A fiduciary relationship] exists when there is a reposing of faith, confidence and trust, and the placing of reliance by one upon the judgment and advice of the other." Kurth v. Van Horn, 380 N.W.2d 693, 695--96 (Iowa 1986) (quoting Black's Law Dictionary 564 (5th ed. 1979)). "As a general rule, . . . a fiduciary duty or confidential relationship does not arise solely from a bank-depositor relationship." Id. at 696; see also Curtis v. Armagast, 138 N.W. 873, 878 (Iowa 1912) (stating terms "fiduciary" and "confidential" relationships are used interchangeably). Because bank services to any particular customer will vary, the facts and circumstances of each case are important in deciding whether a fiduciary or confidential relationship exists. Kurth, 380 N.W.2d at 696. "A fiduciary who commits a breach of his duty as a fiduciary is guilty of tortious conduct to the person for whom he should act." Restatement (Second) of Torts § 874(b) (1979).
The district court relied on the following evidence to support its conclusion that the bank had a fiduciary relationship with Weber: (1) Finer's solicitation of a personal loan from Weber, in contravention of bank policy; (2) Finer's utilization of bank documents to reflect that loan; (3) Finer's request that Weber keep the personal transaction secret; (4) Finer's request that Weber not record the mortgage purportedly securing the personal ...