Goodman v. Wells Fargo Bank
Filed 1/30/14 Goodman v.
Wells Fargo Bank CA2/5
OFFICIAL REPORTS
California Rules
of Court, rule 8.1115(a), prohibits courts and parties from citing or relying
on opinions not certified for publication or ordered published, except as
specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
COBY GOODMAN,
Plaintiff and Appellant,
v.
WELLS FARGO
BANK, N.A.,
Defendant and Respondent.
B243614
(Los
Angeles County
Super. Ct. No. LC090605)
APPEAL
from a judgment of the Superior Court of
the County of Los Angeles, John Shepard Wiley, Jr., Judge. Reversed.
Blood
Hurst & O’Reardon, Timothy G. Blood, Thomas J. O’Reardon; Kaplan Lee,
Jonathon Kaplan, Yitz E. Weiss, and Paul Y. Lee for Plaintiff and Appellant.
K&L
Gates, Kevin S. Asfour, Irene C. Freidel, pro hac vice, for Defendant and
Respondent.
>
INTRODUCTION
Plaintiff
and appellant Coby Goodman appeals from a judgment
in favor of defendant and respondent Wells Fargo Bank, N.A. following the trial
court’s sustaining of defendant’s demurrer to the second amended complaint
(SAC). Plaintiff contends that the trial
court erred because he stated facts sufficient to constitute the causes of
action pleaded in the SAC: breach of
contract, breach of the implied covenant of good faith and fair dealing,
promissory estoppel, and violations of unfair competition law (UCL),
17200 et seq. We reverse the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
A. The
SAC
Plaintiff
filed a SAC as a class action lawsuit against
defendant seeking damages for himself, and all others similarly situated, based
on causes of action for breach of contract, breach of the implied covenant of
good faith and fair dealing, promissory estoppel, and violations of the UCL. Plaintiff alleged that in 2006, he obtained a
loan from defendant, secured by a parcel of real property. In 2009, defendant caused to be recorded a
notice of default alleging that plaintiff failed to make payments due on the
loan and defendant was electing to sell the property. Plaintiff alleged that the notice of default
was defective.
Plaintiff
alleged that in 2009, he requested a loan modification
from defendant, and at defendant’s request, plaintiff provided to defendant “all
of the detailed financial disclosures [requested by defendant] necessary to
determine if he [was] qualified for a loan modification under [the home
affordable modification program (HAMP)].†In the latter part of 2009, plaintiff obtained
a “HOME AFFORDABLE MODIFICATION PROGRAM LOAN TRIAL PERIOD (Step One of Two-Step
Documentation Process)â€â€”known as a trial period plan (TPP)—from defendant, and
signed it. Plaintiff attached a copy of
the TPP to the SAC; it provided signature blocks for plaintiff and defendant,
but the copy attached to the SAC was unexecuted.
Plaintiff
alleged that on January 5, 2010, defendant sent a letter to plaintiff congratulating
him on entering into the HAMP TPP. The
letter was attached to the SAC, and it provided, “You did it. By entering into a Home Affordable
Modification Trial Period Plan you have taken the first step toward making your
payment more affordable. We want to
remind you that when you signed your [TPP], you agreed to work with a
HUD-approved housing counseling agency. . . . [¶] Your next step is to choose from the
following housing counseling options: . . . .†The top of the letter contained a logo or
other mark bearing the names of defendant and Federal Home Loan Mortgage
Corporation (Freddie Mac).
The
TPP stated, “If [plaintiff is] in compliance with this [TPP] and [plaintiff’s]
representations in Section 1 continue to be true and correct in all material
aspects, then [defendant] will provide [plaintiff] with a Loan Modification
Agreement, as set forth in Section 3, that would amend and supplement (1) the
Mortgage on the Property, and (2) the Note secured by the Mortgage. [¶] If [plaintiff has] not already
done so, [plaintiff is] providing confirmation of the reasons [plaintiff] cannot
afford my mortgage payment and documents to permit verification of all of [plaintiff’s]
income . . . to determine whether [plaintiff] qualif[ies] for the
offer described in this [TPP].
[Plaintiff] understand[s] that after [plaintiff] sign[s] and returns[s]
two copies of this [TPP] to [defendant], [defendant] will send [plaintiff] a
signed copy of this [TPP] if [plaintiff] qualif[ies] for the Offer[
or will send [plaintiff] written notice that [plaintiff does] not qualify for
the Offer. This [TPP] will not take
effect unless and until both [plaintiff] and [defendant] sign it and
[defendant] provides [plaintiff] with a copy of this [TPP] with [defendant’s]
signature. â€
Plaintiff
made several representations to defendant in section 1 of the TPP; including
that he was unable to afford his existing mortgage; he lived on the real
property, the documents he had provided to defendant, “including the documents
and information regarding [his] eligibility for the program,†were true and
correct; and “[i]f [defendant] requires me to obtain credit
Loan Trial Period,†stated that plaintiff will pay defendant three monthly installments
of a specified sum by specified dates. Those
payments are “an estimate of the payment[s] that will be required under the
modified loan terms . . . .†Plaintiff alleged that the monthly
installment payments under the TPP were “larger payments than Plaintiff’s
regular monthly mortgage payments . . . .â€
Section
3 of the TPP stated, inter alia, that, “If [plaintiff] compl[ies] with the
requirements in Section 2 [i.e., signing the TPP and making the three monthly
installments payments] and [plaintiff’s] representations in Section 1 continue
to be true in all material respects, [defendant] will send [plaintiff] a
Modification Agreement for [plaintiff’s] signature which will modify [plaintiff’s]
Loan Documents as necessary to reflect [a] new payment amount and waive any
unpaid late charges accrued to date.â€
Section
2 of the TPP states, inter alia, in paragraph F, “If prior to the Modification
Effective Date,[
(i) [defendant] does not provide [plaintiff] a fully executed copy of this
[TPP] and the Modification Agreement; (ii) [plaintiff has] not made the Trial
Period payments required under
Section 2 of this [TPP]; or [defendant] determines that [plaintiff’s]
representations in Section 1 are no longer true and correct, the Loan Documents
will not be modified and this [TPP] will terminate.â€
Section
2, paragraph G, of the TPP states, “[Plaintiff] understand[s] that the [TPP] is
not a modification of the Loan Documents and that the Loan Documents will not
be modified unless and until (i) [plaintiff] meet[s] all of the conditions
required for modification, (ii) [plaintiff] receive[s] a fully executed copy of
a Modification Agreement, and (iii) the Modification Effective Date has
passed.â€
Plaintiff
alleged that he fully performed under the terms of the TPP, including providing
defendant with all necessary documentation, keeping his information accurate, and
making each of the required payments. Plaintiff
continued to make two additional monthly installment payments after he had made
the three installment payments specified in the TCC, and “complied with the TPP
Contract’s credit counseling requirement and contacted a HUD-approved housing
counseling agency.â€
Plaintiff
alleged that on June 28, 2010, defendant sent a
letter to plaintiff, a copy of which was attached to the SAC, stating that,
“Unfortunately, after carefully reviewing the information you’ve provided, we
are unable to adjust the terms of your mortgage. [¶] We are unable to offer you a
Home Affordable Modification because you did not provide us with the documents
we requested. . . . [¶] You have 30 calendar days from the date of
this notice to contact [defendant] to discuss the reason for non-approval for a
HAMP modification . . . . Your loan
may be referred to foreclosure during this time, or any pending foreclosure
action may continue. However, if allowed
by state law and investor guidelines, no foreclosure sale will be conducted and
you will not lose your home during this 30-day period†Plaintiff alleged that defendant’s reason that
it was unable to offer plaintiff a permanent modification of his loan—that he did
not provide defendant with the documents it requested—was false, and
notwithstanding defendant’s promise to refrain from conducting a foreclosure
sale for at least 30 days from June 28, 2010, on or about July 14, 2010,
defendant foreclosed on plaintiff’s home.
Plaintiff
alleged that defendant failed to provide him with a permanent loan
modification, and as a proximate cause thereof, plaintiff, inter alia, lost
title to his property, lost equity in his property, incurred costs and expenses
in connection with preparing and presenting documents and information to
defendant, did not seek alternatives to modification such as refinancing or
selling the property, given a lowered credit score, and suffered emotional
distress.
B. Demurrer
Defendant
demurred to the SAC on several grounds, including that each of the causes of
action failed to state a cause of action. Defendant, in part, relied on
(2011) 200 Cal.App.4th 1499 (Nungaray)
for the proposition that the TPP there was not a “contract for a permanent
modification.†Plaintiff opposed the
demurrer relying, in part, on Wigod v.
Wells Fargo Bank, N.A. (7th Cir. 2012) 673 F.3d 547 (Wigod) for the proposition that the TPP “constitutes ‘an
promise’ supporting a breach of contract claim.â€
The
trial court sustained defendant’s demurrer, and directed defendant’s counsel
“to give [his] colleagues a form of judgment . . . .†In what the parties describe as a tentative
ruling, the trial court stated that the breach of contract claim failed to
state facts sufficient to constitute a cause of action. The trial court quoted Nungaray, supra, 200 Cal.App.4th 1499 at page 1504, stating that,
“‘As a matter of law, there was no contract here. The plain and clear language of paragraph 2G
states that the Plan “is not a modification of the Loan Documents†and the
documents will not be modified unless the Nungarays “meet all of the conditions
required for modification,†including the Nungarays’ receipt of a “fully
executed copy of a Modification Agreement.â€â€™â€
The trial court stated that Wigod,
supra, 673 F.3d 547 takes a conflicting view of “this contract,†but it was
not controlling because it was a federal court case applying Illinois law, and was
not persuasive.
The
trial court found that the breach of the implied covenant of good faith and
fair dealing claim failed. It cited
(N.D.Cal. 2010) 732 F.Supp.2d 952 at pages 968-969, without discussion. Presumably by citing Rosenfeld, the trial court found that the claim failed because it
ruled that plaintiff failed to allege facts stating a cause of action for
breach of contract, so “the implied covenant ha[d] nothing upon which to act as
a supplement . . . .†(
failed to allege facts stating a cause of action for breach of contract, the
cause of action for promissory estoppel also failed.
As
to the claim for violations of the UCL, the trial court stated that “[t]he
parties previously divided [this claim] into two categories: ‘notice of
default’ problems, and ‘agreement-related conduct.[
The trial court ruled that the claim regarding
the notice of default portion of the claim failed because plaintiff did not
allege prejudice. As to the
agreement-related conduct portion of the claim, the claim failed because, as
noted above, the trial court ruled that plaintiff failed to alleged facts
stating a cause of action for breach of contract. The trial court also ruled that the claim for
violations of the UCL failed because plaintiff alleged “fraud, bad faith, and
false pretenses against [defendant]†but plaintiff did not plead “these
accusations of fraud with particularity.â€
Shortly after the hearing on the demurrer, the
Northern District of California issued an opinion in Sutcliffe v. Wells Fargo Bank, N.A. (N.D.Cal. 2012) 283 F.R.D. 533
(Sutcliff). Plaintiff filed a motion for reconsideration,
arguing, inter alia, that Sutcliff
distinguished Nungaray, supra, 200
Cal.App.4th 1499, and held “at least at the pleading stage, that the TPP offers
a sufficient basis to show the existence of an enforceable agreement.†(Sutcliffe,
supra, 283 F.R.D. at p. 550.) According
to the trial court, Sutcliffe, supra, 283
F.R.D. 533 is an unpublished federal trial court opinion, and therefore is not
“new law for the purpose of reconsideration.†In addition, the trial court declined to
consider Sutcliffe because it was
simply the “Nungaray versus
when the trial court granted defendant’s demurrer. The trial court acknowledged that
distinguishable because unlike here, in that case the borrowers had not met the
condition precedent of providing their documents to the lender. The trial court stated, however, that it believed
it was bound by Nungaray because it is
“a proper and a wholehearted treatment of . . . state appellate
authority that is binding on me directly, binding on all trial courts in
California, all state trial courts.†Judgment
was entered in favor of defendant and against plaintiff.
DISCUSSION
A. Standard
of Review
“On
appeal from a dismissal following the sustaining of a demurrer, we review the
complaint de novo to determine whether it alleges facts stating a cause of
action under any legal theory. We view
the demurrer as admitting all material facts properly pleaded, but not
contentions, deductions or conclusions of fact or law. [Citations.]†(Tom
Jones Enterprises, Ltd. v.
We may consider judicially noticeable matters and facts in the exhibits
attached to the complaint. (
(1996) 50 Cal.App.4th 726, 732-733.) Plaintiff
did not seek leave to amend his SAC in the trial court.
B. Applicable
Law
“In
response to the unfolding financial crisis of 2008, Congress passed the
Emergency Economic Stabilization Act, Pub. L. No. 110-343, 122 Stat. 3765. This law included the Troubled Asset Relief
Program (‘TARP’), ‘which required the Secretary of the Treasury, among many
other duties and powers, to “implement a plan that seeks to maximize assistance
for homeowners and . . . encourage the servicers of the underlying mortgages .
. . to take advantage of . . . available programs to minimize foreclosures.â€â€™ [Citations.]â€
(Corvello v. Wells Fargo Bank, NA
(9th Cir. 2013) 728 F.3d 878, 880 (
of the Treasury implemented the Home Affordable [Modification] Program (HAMP) . .
. . “The goal of HAMP is to provide relief to borrowers who
have defaulted on their mortgage payments or who are likely to default by
reducing mortgage payments to sustainable levels, without discharging any of the
underlying debt.†[Citation.]’ [Citation.]â€
(Lueras v. BAC Home Loans
Servicing, LP (2013) 221 Cal.App.4th 49, 56, fn. 1.)
“[I]n
February 2009 the Secretary set aside up to $50 billion of TARP funds to induce
lenders to refinance mortgages with more favorable interest rates and thereby
allow homeowners to avoid foreclosure. The
Secretary negotiated Servicer Participation Agreements (SPAs) with dozens of
home loan servicers, including Wells Fargo.
Under the terms of the SPAs, servicers agreed to identify homeowners who
were in default or would likely soon be in default on their mortgage payments,
and to modify the loans of those eligible under the program. In exchange, servicers would receive a $1,000
payment for each permanent modification, along with other incentives. The SPAs stated that servicers ‘shall perform
the loan modification . . . described in . . . the Program guidelines and
procedures issued by the Treasury . . . and . . . any supplemental
documentation, instructions, bulletins, letters, directives, or other
communications . . . issued by the Treasury.’â€
(Wigod, supra, 673 F.3d at p. 556.)
In
April 2009, the Treasury issued Supplemental Directive 09-01, a regulation
delineating HAMP’s eligibility requirements and modification procedures. (U.S. Dept. Treasury, HAMP Supplemental
Directive No. 09-01, Apr. 6, 2009, pp. 2-18; Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal.App.4th 915,
923 (Bushell).) “As for HAMP’s eligibility requirements,
under Supplemental Directive 09-01, before a lender offers a TPP to a
distressed borrower, the lender (1) has already found that the borrower
satisfies certain simple threshold requirements under HAMP regarding the basic
nature of the loan obligation . . .; (2) has already calculated
a trial modification payment amount using a ‘waterfall’ method of specified
steps . . .; and (3) most significantly from the lender’s perspective, has
already determined, pursuant to application of a net present value (NPV) test
based in part on income/financial representations provided by the borrower,
that it is more profitable to modify the loan under HAMP than to foreclose upon
it. [Citations.] Furthermore, Supplemental Directive 09-01
specifies that, upon receiving the signed TPP from the borrower (with the income
verification documents), the lender ‘must confirm’ that the borrower continues
to meet these HAMP eligibility criteria and, if not, the lender ‘should
promptly communicate’ that fact in writing to the borrower ‘and consider the
borrower for another foreclosure prevention alternative.’ [Citation.]â€
(Bushell, supra, 220 Cal.App.4th at pp. 923-924.)
C. Breach
of Contract
Plaintiff
contends that he sufficiently pleaded a cause of action for breach of
contract. He alleged that the TPP
constituted a valid, binding contract requiring defendant to provide plaintiff
with a permanent loan modification agreement contingent upon plaintiff
complying with the terms of the TPP.
Plaintiff alleged that defendant breached the contract because he performed
all of the conditions required of him by the TPP, but defendant failed to
provide him with a permanent loan modification agreement for his
signature. We hold that at this pleading
stage plaintiff stated facts sufficient to constitute a cause of action for
breach of contract.
1. Applicable Law
“The
rules governing the role of the court in interpreting a written instrument are
well established. The interpretation of
a contract is a judicial function. (
Drayage etc. Co. (1968) 69 Cal.2d 33,
39-40 [69 Cal.Rptr. 561, 442 P.2d 641] (Pacific
Gas & Electric).) In engaging in
the function, the trial court ‘give[s] effect to the mutual intention of the
parties as it existed’ at the time the contract was executed. (Civ. Code, § 1636.) Ordinarily, the objective intent of the
contracting parties is a legal question determined solely by reference to the
contract’s terms. (Civ. Code, § 1639 [‘[w]hen
a contract is reduced to writing, the intention of the parties is to be
ascertained from the writing alone, if possible . . .’]; Civ. Code, § 1638 [the
‘language of a contract is to govern its interpretation . . .’].) [¶] The
court generally may not consider extrinsic evidence of any prior agreement or
contemporaneous oral agreement to vary or contradict the clear and unambiguous
terms of a written, integrated contract. (Code Civ. Proc., § 1856, subd. (a);
81 Cal.App.4th 1108, 1115-1116 [97 Cal.Rptr.2d 432]; Principal Mutual Life Ins. Co. v. Vars, Pave, McCord & Freedman
(1998) 65 Cal.App.4th 1469, 1478 [77 Cal.Rptr.2d 479] [parol evidence may not
be used to create a contract the parties did not intend to make or to insert
language one or both parties now wish had been included].) Extrinsic evidence is admissible, however, to
interpret an agreement when a material term is ambiguous. (Code Civ. Proc., § 1856, subd. (g);
evidence reveals that apparently clear language in the contract is, in fact,
susceptible to more than one reasonable interpretation, then extrinsic evidence
may be used to determine the contracting parties’ objective intent];
El Monte (1985) 177 Cal.App.3d 615, 622 [220 Cal.Rptr. 411].)†(Wolf
v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107,
1125-1126.)
“A
contract must receive such an interpretation as will make it lawful, operative,
definite, reasonable, and capable of being carried into effect, if it can be
done without violating the intention of the parties.†(Civ. Code, § 1643.) “‘The court must avoid an interpretation
which will make a contract extraordinary, harsh, unjust, or inequitable.’ [Citation.]â€
(Powers v. Dickson, Carlson &
Campillo (1997) 54 Cal.App.4th 1102, 1111-1112.)
The
elements of a breach of contract claim are (1) the existence and terms of the
contract, (2) the plaintiff’s performance or excuse for failing to perform, (3)
the defendant’s breach, and (4) plaintiff’s damages. (Amelco
Electric v. City of Thousand Oaks (2002) 27 Cal.4th 228, 243; Spinks
v. Equity Residential Briarwood
1031.)
After the trial
court ruled on defendant’s demurrer, several state and federal appellate decisions
were issued that provide guidance of TPP’s under HAMP.
TPP, complied with the terms of the TPP, including making the monthly payments
required by the TPP. (
borrower did not qualify for a HAMP loan modification, and therefore did not
provide the borrower with a permanent loan modification agreement. The borrower filed a lawsuit against the bank
alleging, inter alia, breach of the TPP contract. In reversing the trial court’s order
sustaining the bank’s demurrer, the court stated, “[W]hen a borrower complies
with all the terms of a TPP, and the borrower’s representations remain true and
correct, the loan servicer must offer the borrower a permanent loan
modification. As a party to a TPP, a
borrower may sue the lender or loan servicer for its breach. [Citation.]
Because [the borrower] complied with all the terms of the TPP, [the bank]
had to offer her a permanent loan modification.†(Id.
at p. 786.) The court explained that the
bank’s “reevaluation upon completion of the trial period would be limited to
determining whether [the borrower] had complied with the terms of the [TPP] and
whether [the borrower’s] original representations remained true and correct.†(Id.
at p. 798.)
In
Corvello, supra, 728 F.3d 878, the plaintiffs, after falling behind on their
mortgages, enrolled in a TPP. “The TPP requires borrowers to submit documentation
to confirm the accuracy of their initial financial representations, and to make
trial payments of the modified amount to the servicer.†(Id.
at pp. 880-881.) Despite complying with
their obligations under the TPP, the plaintiffs were never offered a permanent
loan modification by the defendant, Wells Fargo. The plaintiffs sued for breach of contract, alleging
that “that they complied with their trial plans and made the required payments,
and should have been offered permanent modifications.†(Ibid.)
Applying
California law, the court in Corvello,
supra, 728 F.3d 878 followed Wigod,
supra, 673 F.3d 547 (discussed below), and West, supra, 214 Cal.App.4th 780, to reverse the district court’s
order of dismissal, holding that the defendant, Wells Fargo, was contractually
obligated under the terms of the TPP to offer a permanent modification to the
plaintiffs because they complied with the TPP by submitting accurate
documentation and making required payments under the TPP. “Where, as here, borrowers allege . . . that
they have fulfilled all of their obligations under the TPP, and the loan
servicer has failed to offer a permanent modification, the borrowers have valid
claims for breach of the TPP agreement.â€
(Id. at p. 884.) Subsequently, Corvello, supra, 728 F.3d 878, has been cited with approval in
(2013) 219 Cal.App.4th 1052 (Chavez),
at page 1059; Bushell, supra, 220 Cal.App.4th
supra, 221 Cal.App.4th at page 74.
In
lender a TPP. The plaintiffs alleged
that for over two years they made the payments under the TPP and provided the
lender with the documents it requested. (Id.
at p. 926.) The lender denied the plaintiffs
a permanent loan modification and foreclosed on the plaintiff’s home. The plaintiff sued the lender based on causes
of action for breach of contract, promissory estoppel, and fraud based on
intentional misrepresentation or false promise.
The court reversed the trial court’s judgment following an order
sustaining the lender’s demurrer. The
court relied on West, supra, 214
Cal.App.4th 780, and Wigod, supra, 673
F.3d 547, stating that, “These two decisions . . . concluded
that when a borrower has alleged that he or she has complied with all the terms
of a trial modification plan offered under HAMP—including making all required
payments and providing all required documentation—and if the borrowers
representations on which the modification is based remain true and correct, the
lender or loan servicer . . . must offer the borrower a good faith
permanent modification; and if the lender fails to do so, the borrower may sue
the lender, under state law, for breach of contract of the trial modification
plan, among other causes of action.†(
The court in
mandate is because, as West explains,
citing Wigod, ‘When [a lender]
received public tax dollars under [TARP], it agreed to offer TPP’s and loan
modifications under HAMP according to [regulations] . . . issued by the
Department of the Treasury. (
. . . [the] HAMP [S]upplemental [D]irective 09-01 [regulation] . . . ,
if the lender approves [(i.e., offers)] a TPP, and the borrower complies with
all the terms of the TPP and all of the borrower’s representations remain true
and correct, the lender must offer a
permanent loan modification. (
Directive 09-01 . . . at page 18, states: “If the borrower complies
with the terms and conditions of the [TPP], the loan modification will become
effective on the first day of the month following the trial period . . . .â€â€™
(West, supra, 214 Cal.App.4th at pp. 796-797, fn. omitted.)†(Id.
at p. 925.)
The court in
stated, “[P]laintiffs have alleged . . . that they have
complied with all terms of the TPP—including making all required payments, providing all required
documentation, and maintaining the integrity of their modification-based
representations, and they have alleged that they ‘qualif[ied] for the
modification under HAMP’ (given [the] offer [by plaintiff’s lender] of a TPP to
them, and no ‘prompt[] communicat[ion]’ to the contrary from plaintiff’s lender).
(Supplemental Directive 09-01,
of action for breach of contract under California law. They have alleged that [their lender] breached
the TPP contract by failing to offer plaintiffs a good faith permanent loan
modification.†(Id. at p. 926.)
a) Nungaray
and Wigod
Defendant
contends that pursuant to Nungaray,
supra, 200 Cal.App.4th 1499, we should hold that the TPP is not an
enforceable contract for a permanent modification. The trial court in sustaining defendant’s
demurrer to plaintiff’s breach of contract cause of action, quoted
1504, stating that, “‘As a matter of law, there was no contract here. The plain and clear language of paragraph 2G
states that the Plan “is not a modification of the Loan Documents†and the
documents will not be modified unless the Nungarays “meet all of the conditions
required for modification,†including the Nungarays’ receipt of a “fully
executed copy of a Modification Agreement.â€â€™â€
In
Nungaray, supra, 200 Cal.App.4th 1499,
the Nungarays, borrowers on a mortgage loan who were delinquent on their
mortgage payments, sought a HAMP modification, and ultimately were provided
with a TPP. (Id. at 1502-1503.) The Nungarays
made the required payments under the TPP, but failed to provide all of the
required documentation under the TPP to their lender and the entity that
serviced the loan on the lender’s behalf (defendants). (Id.
at p. 1503.)
Claiming
that the TPP “is an enforceable loan modification,†the Nungarays filed a
lawsuit against the defendants alleging causes of action for breach of
contract, negligence, and quiet title. The trial court granted summary judgment in
favor of the defendants because “the Plan was not an enforceable agreement
requiring defendants to enter into a loan modification because it ‘was
expressly contingent upon a number of factors which never came to
fruition.’†(Nungaray, supra, 200 Cal.App.4th at p. 1504.) The court affirmed the trial court’s ruling
granting the defendants’ motion for summary judgment for the reasons stated by
the trial court here. The court also
stated, “The Plan also required the Nungarays to submit financial information
regarding their hardship and states that [the loan servicer] and the Bank would
determine whether they ‘qualif[ied] for the Offer.’†(Ibid.)
Relying on Nungaray,
supra, 200 Cal.App.4th 1499, defendant here argues that plaintiff did not
allege that he received a fully executed copy of a loan modification agreement
from defendant, a condition required under section 2 of the TPP for the loan
documents to be modified. The
requirement that plaintiff received a fully executed copy of a loan
modification agreement from defendant, however, is not a condition to defendant
providing plaintiff with a permanent loan modification agreement. That provision in the TPP means the permanent
loan modification agreement will not take effect until that agreement is
signed. As stated in
[the defendant bank] argues that its obligation to send [the borrower] a
permanent Modification Agreement was triggered only if and when it actually
sent [the borrower] a Modification Agreement.
Wells Fargo’s proposed reading of section 2 would nullify other express
provisions of the TPP Agreement.
Specifically, it would nullify Wells Fargo’s obligation to ‘send [the
borrower] a Modification Agreement’ if she ‘compl[ied] with the requirements’
of the TPP and if her ‘representations . . . continue to be true in all
material respects.’ . . . [¶] The more natural interpretation is to read
the provision as saying that no permanent modification existed ‘unless and
until’ [the plaintiff] (i) met all conditions, (ii) [the bank] executed the
Modification Agreement, and (iii) the effective modification date passed. Before these conditions were met, the loan
documents remained unmodified and in force, but under paragraph 1 and section 3
of the TPP, [the bank] still had an obligation to offer [the plaintiff] a
permanent modification once she satisfied all her obligations under the
agreement.†(Id. at p. 563; see Corvello,
supra, 728 F.3d at p. 883 [“Under
Paragraph 2G of the TPP, there could be no actual mortgage modification until
all the requirements were met, but the servicer could not unilaterally and
without justification refuse to send the offerâ€]; Gaudin v. Saxton Mortgage Services, Inc. (N.D.Cal. 2011) 820 F.Supp.2d
1051, 1054 fn.5 [“the provisions referring to an executed permanent
modification agreement are best understood as explaining that the modification
will not take legal effect until such a document is signed, but do not serve as
a condition precedent to the lender’s obligation to provide such an executed
documentâ€].) Also, the court in
loan modification agreement from defendant as, under one interpretation, an
exercise of “unbridled discretion†by defendant, turning “an otherwise
straightforward offer into an illusion.â€
The reasoning in
Nungaray, supra, 200 Cal.App.4th 1499—that
defendant must provide a fully executed copy of a modification agreement to
plaintiff before the loan documents are modified—does not apply
Unlike in Nungaray, plaintiff
does not contend that the TPP “is†an enforceable loan modification agreement. Instead, he contends that under the TPP and
under the circumstances defendant failed to “provide†him with a permanent loan
modification agreement.
We
must determine the objective intent of the parties based on reading the TPP as
a whole. (Civ. Code, § 1641 [“The whole
of a contract is to be taken together, so as to give effect to every part, if
reasonably practicable, each clause helping to interpret the otherâ€].) The language of the TPP provides that if
plaintiff complies with the TPP and his representations made in Section 1 of
the TPP continue to be true and correct in all material aspects, defendant will
provide him with a loan modification agreement.
Plaintiff alleged that he fully performed as required.
In
addition, although relied upon by the trial court, Nungaray, supra, 200 Cal.App.4th 1499, is distinguishable. In that case, the plaintiffs failed to
provide all of the required documentation under the TPP to defendants. Here, plaintiff alleged that he fully performed
under the terms of the TPP, including providing defendant with all necessary
documentation. “Nungaray does not apply because the borrowers there had failed to
submit the documents required by the TPP.â€
(Corvello,
have been based on the fact that the borrowers had not complied with the terms
of TPP; in particular, they failed to provide the required financial
informationâ€].) Plaintiff alleged that
he provided defendant with all the requested documentation.
Also
in sustaining the demurrer to the breach of contract cause of action, the trial
court acknowledged that Wigod, supra, 673
F.3d 547 is contrary to Nungaray, supra,
200 Cal.App.4th 1499. In
loan borrower, requested a HAMP loan modification from her lender, Wells
Fargo. (Wigod, supra, 673 F.3d at p. 558.)
After providing the financial information requested by Wells Fargo, it
was determined that the plaintiff was qualified for HAMP. (Ibid.) Wells Fargo therefore sent plaintiff a TPP
agreement for a four month trial term. (
The plaintiff timely made, and Wells Fargo accepted, all four payments due
under the TPP agreement. (
it “assume[d] that [the plaintiff] complied with all other obligations under
the TPP Agreement.†(
Wells Fargo, however, did not offer the plaintiff a permanent loan
modification agreement, informing her that it was “‘unable to get you to a
modified payment amount that you could afford per the investor guidelines on
your mortgage.’†(Ibid.) In analyzing the
plaintiff’s breach of contract claim, the Seventh Circuit rejected Wells
Fargo’s assertion that she had never actually qualified for loan modification,
finding this involved a “factual question†that could not be resolved on a
motion to dismiss. (Id. at p. 559, fn 3).
Interpreting
the TPP contract, the court in
that “[i]n two different provisions of the TPP Agreement, paragraph 1 and
section 3, Wells Fargo promised to offer [the plaintiff] a permanent loan
modification if two conditions were satisfied: (1) she complied with the terms
of the TPP by making timely payments and disclosures; and (2) her
representations remained true and accurate.â€
(Id. at p. 560.) The court stated that “when Wells Fargo
executed the TPP, its terms included a unilateral offer to modify [the
plaintiff’s] loan conditioned on her compliance with the stated terms of the
bargain.†(Id. at p. 562.) Thus, “a
reasonable person in [the plaintiff’s] position would read the TPP as a
definite offer to provide a permanent modification that she could accept so
long as she satisfied the conditions.†(
defendant bank] may have had some limited discretion to set the precise terms
of an offered permanent modification, it was certainly required to offer some
sort of good-faith permanent modification to [the borrower] consistent with
HAMP guidelines. It has offered none.†(Id.
at p. 565.)
The trial court disregarded
was a federal court case applying Illinois law.
However, as stated in Corvello,
supra, 728 F.3d at page 884, “The Seventh Circuit in Wigod was applying Illinois contract law, and we deal with
California law. There is now no material
difference. In West[, supra, 214
Cal.App.4th 780] the California Court of Appeal expressly adopted the reasoning
of Wigod and concluded that the trial
plan agreement in that case authorized banks, before offering a modification,
to evaluate only whether borrowers had complied with the agreement’s terms and
whether their representations remained true.
Once the bank determined that a borrower had complied and the
representations were still true, then the bank was required by the agreement to
offer a permanent modification.†(See
[relying on Wigod, supra, 673 F.3d 547];
Bushell, supra, 220 Cal.App.4th at p.
925 [same].)
Defendant
contends that plaintiff’s breach of contract claim fails because he did not
allege that he was “qualified†to receive a permanent loan modification
agreement, and seeks to distinguish Wigod,
supra, 673 F.3d 547 because in that case the plaintiff had been determined
qualified for a permanent modification before she received her TPP, and Wells
Fargo executed the plaintiff’s TPP, thus indicating, according to the court,
that Wells Fargo had determined and communicated to the plaintiff that she
would obtain a permanent modification. The
authorities cited, however, perhaps other than Nungaray, supra, 200 Cal.App.4th 1499, which concerned whether the
TPP was itself an enforceable loan modification, do not require that the
borrower be “qualified†to receive a loan modification agreement; the borrower
just has to comply with the TPP.
The
TPP provides that defendant “will send [plaintiff] a signed copy of this [TPP]
if [plaintiff] qualify[ies] for the Offer or will send me written notice that I
do not qualify for the Offer.†Even if
defendant needed to determine that plaintiff was to be qualified for a loan
modification other than complying with the TPP, instead of sending plaintiff a
signed copy of the TPP or a permanent loan modification agreement, defendant
refused to send them to plaintiff—giving him only one reason for not doing
so—because he “did not provide [defendant] with the documents [defendant]
requested.†Plaintiff, however, alleged
that defendant’s purported reason for being unable to offer him a permanent
modification of his loan was false. We
view the demurrer as admitting all material facts properly pleaded. (Tom
Jones Enterprises, Ltd. v. County of Los Angeles, supra, 212 Cal.App.4th at
p. 1290.) We therefore view as false the
reason defendant did not provide plaintiff with the permanent loan modification
agreement. Therefore, although plaintiff
did not specifically allege the term “qualified,†plaintiff alleged sufficient
facts at this pleading stage that he was qualified to receive from defendant a
permanent modification agreement because he satisfied the TPP conditions.
b) Mutual Consent, Definite Terms, and
Consideration
i) Mutual consent
Defendant
contends that there was no mutual consent of “a contract whereby [plaintiff’s]
loan would be permanently modified no matter what.†Plaintiff, however, did not allege that
defendant was obligated to offer him a loan modification agreement “no matter
what.†Plaintiff alleged that pursuant
to the TPP agreement, defendant was obligated to offer plaintiff a permanent
modification agreement if he satisfied the TPP conditions.
“Contract
formation requires mutual consent, which cannot exist unless the parties ‘agree
upon the same thing in the same sense.’
[Citations.] . . . Mutual assent is
determined under an objective standard applied to the outward manifestations or
expressions of the parties, i.e., the reasonable meaning of their words and
acts . . . .’
[Citations.]†(
Cal.App.4th 199, 208.)
Defendant
offered plaintiff the TPP agreement, which he signed and returned. Defendant acknowledged receipt of plaintiff’s executed
TPP agreement, and welcomed him into the trial period. Plaintiff alleged that he fully performed
under the terms of the TPP, including providing defendant with all necessary
documentation, keeping his information accurate, and making each of the
required payments. There was mutual
consent to enter into the TPP agreement whereby defendant was obligated to
offer plaintiff a permanent modification agreement if he satisfied the TPP
conditions. “[A] reasonable person in
[the plaintiff’s] position would read the TPP as a definite offer to provide a
permanent modification that she could accept so long as she satisfied the
conditions.†(Wigod, supra, 673 F.3d at p. 562.)
ii) Definite terms
Defendant
contends that the TPP did not constitute an agreement because its terms were
not sufficiently definite. Citing
Bank (1991) 233 Cal.App.3d 103, 115, and Laks v. Coast Fed. Sav. & Loan Ass’n (1976) 60 Cal.App.3d 885,
890-91, for the proposition that in a lending context, necessary terms for a
loan agreement include “the identity of the lender and borrower, the amount of
loan, and the terms of repayment,†defendant contends these terms were not in
the TPP. Defendant’s contention is
without merit.
In
order for a contract to be enforceable the terms of the contract must be sufficiently
certain so as to provide a basis for determining to what obligations the
parties have agreed. (
(1998) 60 Cal.App.4th 793, 811.) Whether
a proposed contract, as interpreted by the trier of fact when there is parol
evidence, is sufficiently definite to form an enforceable contract is a
question of law for the court. (
& Wilson, Inc. v. Stone (1973) 35 Cal.App.3d 396, 407.)
Despite
defendant’s contention, the TPP, which provides that plaintiff may under
certain circumstances, obtain from defendant a loan modification agreement,
identifies defendant as the “Lender or Servicer,†plaintiff as the “Borrower,â€
the date of the original note and mortgage, and the original loan number. The TPP also identifies the TPP payments, set
at $2,332.07 per month, and the TPP provides that the monthly payments under
the TPP are “an estimate of the payment that will be required under the
modified loan terms . . . .â€
In
addition, the court in Sutcliffe,
defendant’s contention that the TPP was not sufficiently definite because it
did not include the identity of the lender and borrower, the amount of loan,
and the terms of repayment. “Typically,
where a contract involves a loan it should include the identity of the lender
and borrower, the amount of the loan, and the terms for repayment in order to
be sufficiently definite.
[Citation.] The California
Supreme Court has cautioned, however, that the destruction of contracts on the
basis of indefiniteness is disfavored and therefore, courts should, if
feasible, ‘construe agreements as to carry into effect the reasonable
intentions of the parties if [they] can be ascertained.’ [Citation.] [¶] Wells Fargo contends that the TPP cannot give
rise to an enforceable contract because it does not set forth the repayment
terms that would apply to the modified loan and therefore it is
indefinite. The Court disagrees. As the court explained in
specific terms of repayment, Wells Fargo was required to offer a modification
that was consistent with HAMP guidelines and therefore, the agreement did not
give Wells Fargo unlimited discretion as to the repayment terms. [Citation.]
Therefore, the Wigod court
concluded that the TPP was sufficiently definite for a contract to exist. [Citation.]
Similarly, the courts in In re
Ossman, 2012 Bankr. LEXIS 326, 2012 WL 315485, at *3, and
2011 WL 7163111, at *4, found that the TPP was not indefinite to the extent
that the terms of the modification had to be calculated consistent with HAMP
guidelines. Because Wells Fargo was
required to comply with HAMP guidelines in determining the terms of repayment
under a modification agreement, the Court concludes, at least at the pleading
stage, that the terms of the TPP are sufficiently definite to support the
existence of a contract.†(
iii) Consideration
Defendant
contends that plaintiff did not allege that he provided valid consideration for
a permanent modification of his loan.
The contract at issue here is not a permanent modification agreement;
there is no such agreement. The contract
at issue is the TPP agreement pursuant to which, under certain circumstances,
defendant is obligated to provide plaintiff with a loan modification agreement.
There was sufficient consideration to
support the TPP.
California
Civil Code, section 1605, defines “good consideration†to support a contract
as, “Any benefit conferred, or agreed to be conferred, upon the promisor, by
any other person, to which the promisor is not lawfully entitled, or any
prejudice suffered, or agreed to be suffered, by such person, other than such
as he is at the time of consent lawfully bound to suffer, as an inducement to
the promisor, is a good consideration for a promise.â€
“Doing
or promising to do what one is already legally bound to do cannot be
consideration for a promise. [Citation.]
On the other hand, ‘[u]nder California law,
consideration exists even if the performance due “consists almost wholly of a
performance that is already required and that this performance is the main
object of the promisor’s desire. It is
enough that some small additional performance is bargained for and
given. . . . [It is sufficient] if the act or forebearance
given or promised as consideration differs in any way from what was previously
due.’ [Citations.] [I]n Ansanelli
[v. JP Morgan Chase Bank, N.A., 2011 U.S. Dist. LEXIS 32350] the Court held
that the additional time spent preparing the disclosures that were required
under the trial payment plan—which were not
required under the original loan—was adequate consideration to support the
existence of a contract.
because the borrower agreed to ‘open new escrow accounts, to undergo credit
counseling (if asked), and to provide and vouch for the truth of her financial
information.’ 673 F.3d at 564.†(Sutcliffe,
supra, 283 F.R.D. at pp. 552-553.)
Plaintiff
alleged that he provided defendant, inter alia, with all necessary
documentation, kept his information accurate, and underwent credit counseling
as required by the TPP. Plaintiff also
alleged that he made all of the monthly installment payments under the TPP, and
they were “larger payments than Plaintiff’s regular monthly mortgage
payments . . . .†Plaintiff’s
allegations are sufficient to show that the TPP was supported by adequate consideration.
c) Statute of Frauds
Defendant
contends that “the TPP. . . fails to constitute a contract for a permanent
modification pursuant to the statute of frauds.†We disagree.
As noted above,
plaintiff does not contend that the TPP constitutes a permanent modification
agreement. Instead, plaintiff contends
that the TPP agreement is one which, under certain circumstances, defendant is
obligated to provide plaintiff with a loan modification agreement.
Civil Code
section 1624, subdivision (a) provides,
“The following contracts are invalid, unless they, or some note or
memorandum thereof, are in writing and subscribed by the party to be charged or
by the party’s agent: [¶] (1) An agreement that by its
terms is not to be performed within a year from the making thereof.†The statute of frauds does not apply to the
TPP because the TPP was for a three month period. It provided for three monthly payments from February 1, 2010 through April 1, 2010, and plaintiff
acknowledged certain facts “[d]uring [that three-month] period.†The TPP stated that time was of the essence.
Even
if the statute of frauds applied to the TPP, defendant could be estopped from
asserting it. In Chavez, supra, 219
Cal.App.4th 1052, the court stated, “[E]stoppel may preclude the use of a
statute of frauds defense.
[Citation.] ‘“The doctrine of
estoppel has been applied where an unconscionable injury would result from
denying enforcement after one party has been induced to make a serious change
of position in reliance on the contract or where unjust enrichment would result
if a party who has received the benefits of the other’s performance were
allowed to invoke the statute.â€â€™
[Citation.]†(
statute of frauds defense in a given case is generally a question of fact. [Citation.]â€
(Ibid.)
“‘The
payment of money is not “sufficient part performance to take an oral agreement
out of the statute of frauds†[citation], for the party paying money “under an
invalid contract … has an adequate remedy at law.â€â€™ [Citations.]â€
(Secrest v. Security National
Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 555-556.) The court in Corvello, supra, 728 F.3d
at page 885, however, rejected the argument that a claim for breach of an oral
agreement to modify a mortgage is barred by the statute of frauds in California when
the party asserting a breach had alleged full performance of its obligations
under the contract.
Here,
plaintiff alleged that that he fully performed under the TPP, including making
the monthly installment payments that were “larger payments than Plaintiff’s
regular monthly mortgage payments . . .,†provided defendant with all
necessary documentation, kept his information accurate, and underwent credit
counseling. Plaintiff also alleged that
as a result of entering into the TPP, he did not seek alternatives to
modification such as refinancing or selling the property. At this pleading stage, plaintiff alleged
facts sufficient to estop defendant from asserting the statute of frauds as a defense.
Furthermore,
plaintiff alleged that defendant sent a letter to plaintiff in connection with
the TPP, congratulating him on entering into the HAMP, and reminding plaintiff
of his obligation to obtain credit counseling.
The top of the letter contained a logo or other mark bearing the name of
defendant. “The signature of the party
to be charged ‘need not be manually affixed, but may in some cases be printed,
stamped or typewritten.’ [Citation.]†(
A signature on one document may be sufficient to satisfy the statute of
frauds regarding another document if the writings “relate to the same matter
and constitute several parts of one connected transaction.†(Thompson
v. Walsh (1946) 76 Cal.App.2d 188, 194.)
Additionally, at this pleading stage, discovery may reveal that
defendants signed the TPP.
D. Implied
Covenant of Good Faith and Fair Dealing
Plaintiff
contends that he stated facts sufficient to constitute a cause of action for
breach of the implied covenant of good faith and fair dealing. We agree.
“‘“Every
contract imposes upon each party a duty of good faith and fair dealing in its
performance and its enforcement.†[Citation.]’†(Carma
Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2
Cal.4th 342, 371.) However, “[t]he
implied covenant ‘is designed to effectuate the intentions and reasonable
expectations of parties reflected by mutual promises within the contract.’ [Citations.] For this reason, it is well established that
an implied covenant cannot create an obligation inconsistent with an express
term of the agreement. [Citations.]†(Nein
v. HostPro, Inc. (2009) 174 Cal.App.4th 833, 852; Spinks v. Equity Residential Briarwood Apartments,
As
discussed above, plaintiff stated facts sufficient to constitute a cause of
action for breach of the TPP agreement that expressly provided that, “If
[plaintiff is] in compliance with this [TPP] and [plaintiff’s] representations
in Section 1 continue to be true and correct in all material aspects, then
[defendant] will provide [plaintiff] with a Loan Modification
Agreement . . . .†As alleged
by plaintiff, the TPP stated that time is of the essence. Plaintiff alleged that defendant breached the
implied covenant of good faith and fair dealing by, inter alia, “unreasonably
delaying in the modification process for purposes of foreclosing,†“repeatedly
reassuring Plaintiff and the other Class members that all required
documentation was in order when [defendant] intended to deny the modification
on the ground that not all required documentation had been submitted,†and
“denying the modification on the false pretense that the required documents
[were] not submitted. Plaintiff has alleged
sufficiently a cause of action for a breach of the implied covenant of good
faith and fair dealing based on the allegations concerning the breach of
contract.
E. Promissory
Estoppel
Plaintiff
contends that he stated fact sufficient to constitute a cause of action for
promissory estoppel, which might apply if there were no enforceable contract. We agree.
“‘Under
[the doctrine of promissory estoppel,] a promisor is bound when he should
reasonably expect a substantial change of position, either by act or
forbearance, in reliance on his promise, if injustice can be avoided only by
its enforcement. [Citations.]’ [Citation.]â€
(Raedeke v. Gibraltar Sav. &
Loan Assn. (1974) 10 Cal.3d 665, 672, fn. 1.) “[T]he doctrine of promissory
estoppel is used to provide a substitute for the consideration which ordinarily
is required to create an enforceable promise.â€
(Id. at p. 672.)
In
sustaining defendant’s demurrer, the trial court found that because plaintiff
failed to alleged facts stating a cause of action for breach of contract, the
cause of action for promissory estoppel also failed. This does not follow because promissory
estoppel may apply when there is no contract because there is no consideration
to support the contract. Defendant contends
that because the trial court sustained properly the demurrer to that breach of
contract cause of action, it sustained properly defendant’s demurrer to the
cause of action for promissory estoppel.
As discussed above, however, as we hold that plaintiff stated facts
sufficient to constitute a cause of action for breach of contract, the elements
are present for a claim of promissory estoppel.
Defendant
also contends that plaintiff did not state fact sufficient to constitute a
cause of action for promissory estoppel because there was no clear, express
promise to provide plaintiff with a modification agreement. “The elements of promissory estoppel are (1)
a clear and unambiguous promise by the promisor, and (2) reasonable,
foreseeable and detrimental reliance by the promisee.†(Bushell,
supra, 229 Cal.App.4th at p. 922; Laks
v. Coast Fed. Sav. & Loan Assn., supra,
60 Cal.App.3d at p. 890; Wells Fargo
Bank, N.A. v. FSI, Financial Solutions, Inc. (2011) 196 Cal.App.4th 1559,
1573.)
As
discussed above, there are sufficient allegations of an express promise to
provide plaintiff with a modification agreement. Plaintiff alleged that defendant represented
to plaintiff in the TPP, “If [plaintiff is] in compliance with this [TPP] and
[plaintiff’s] representations in Section 1 continue to be true and correct in
all materi
| Description | Plaintiff and appellant Coby Goodman appeals from a judgment in favor of defendant and respondent Wells Fargo Bank, N.A. following the trial court’s sustaining of defendant’s demurrer to the second amended complaint (SAC). Plaintiff contends that the trial court erred because he stated facts sufficient to constitute the causes of action pleaded in the SAC: breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, and violations of unfair competition law (UCL), Business & Professions Code sections 17200 et seq. We reverse the judgment. |
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