Lender liability: investors in corporate borrower could not sue lender for negligence, negligent misrepresentation or fraudulent misrepresentation; under South Carolina law, a bank owes a limited duty of care to its customer, but bank owed no duty to indi

Investors, directors, officers and shareholders of a corporate borrower sued a bank lender alleging that the bank had made misrepresentations to them in their capacity as potential investors. The plaintiffs alleged that the bank had said in a meeting with potential investors that it was “fully committed to providing all of [the borrower]’s short-term and long-term financial needs for growth.” The bank and the corporation entered into a factoring agreement pursuant to which the bank agreed to provide working capital to the corporation. Two years later, the bank stopped advancing funds under the agreement based on the corporation’s alleged default. The corporation filed suit against the bank for breach of contract, and the individual plaintiffs filed a separate suit against the bank in their capacity as investors.

The Supreme Court of South Carolina rejected the investors’ contention that their claims alleging misrepresentation were separate from the corporation’s breach of contract claims. The court held that although a bank may owe a limited duty of care to its corporate customer, the bank owed no duty under South Carolina law to the individuals as investors, officers, directors and shareholders of the customer sufficient to support their claims for negligence, negligence misrepresentation or fraudulent inducement. Here, the investors’ claims were premised on disputed contractual obligations between the bank and its corporate customer, and the investors were not intended third-party beneficiaries to that contract.