Document Type

Article

Publication Date

1989

Abstract

Suppose a lender is asked to make a substantial loan to a prospective borrower. The lender possesses information indicating that the borrower will use the loan proceeds to finance an activity that, although legitimate on its face, is conducted in violation of regulatory provisions. Nevertheless, the lender makes the loan because it promises to be profitable. Later the borrower defaults, and the lender goes to court to enforce the debt and realize on its security interest in the borrower's property. There, the borrower raises the regulatory violations as a defense. Imagine the lender's consternation, and probable response: "What business is it of mine what the borrower does with the money? Am I my borrower's keeper?"

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