Tender rule “ouch” Donna Fields Goldstein.

26 Oct

I was reading tentatives while waiting for courtcall this morning, and saw the following, which may be helpful to y’all.  This is in Burbank, judge Donna Fields Goldstein.

How could a lady with a nice name like Donna be such a wench when it comes to this:

Case Number: EC056981    Hearing Date: May 25, 2012    Dept: B

Demurrer and Motion to Strike

Case Management Conference

The Complaint alleges that the Plaintiffs obtained a loan under a promissory note secured by a deed of trust that was recorded on their real property. The Plaintiffs sought a permanent modification of their loan. When the Plaintiffs could not get an answer from the Defendants regarding the status of a permanent modification, the Plaintiffs stopped making payments. The Defendant then issued a notice of default. The Plaintiffs again sought a modification, but the Defendant advised them that the Plaintiffs were not eligible. A notice of trustee’s sale was issued on August 29, 2011. The Plaintiffs’ home was sold on November 23, 2011. A notice to quit was served on the Plaintiffs on December 12, 2011. Plaintiff alleges the following causes of action in his Complaint:

1) Breach of Written Contract; 2) Breach of Covenant of Good Faith and Fair Dealing; 3) Estoppel; 4) Negligent Misrepresentation; 5) Negligence; 6) Violation of Business and Professions code section 17200; 7) Violation of Civil Code section 2923.6
8) Declaratory Relief; 9) Accounting

The Plaintiffs’ First Amended Complaint includes the following facts in the pleadings and in the exhibits attached to the pleadings:

1) the Plaintiff borrowed $410,000 under a promissory note secured by a deed of trust on their property;
2) a notice of default was recorded on August 17, 2010 on the Plaintiffs’ property that indicated that $13,253.55 was due as of August 16, 2010;
3) a notice of trustee’s sale was recorded on August 29, 2011; and
5) the property was sold on November 23, 2011 at a trustee’s sale to Aurora Loan Services, LLC.

This hearing concerns the demurrer of the Defendants, Aurora Loan Services, LLC and Aurora Bank FSB, to the First Amended Complaint. The Defendants argue that the Plaintiffs cannot maintain any of their claims because the Plaintiffs do not allege that they tendered the amount due. To plead any cause of action for irregularity in the sale procedure, there must be allegations showing that the plaintiff tendered the amount of the secured indebtedness to the defendant. Abdallah v. United Sav. Bank (1996) 43 Cal. App. 4th 1101, 1109 (affirming an order sustaining a demurrer without leave to amend in a case claiming that the foreclosure and sale of a home was improper). A valid tender must be nothing short of the full amount due the creditor. Gaffney v. Downey Sav. & Loan Ass’n (1988) 200 Cal. App. 3d 1154, 1165. The Court of Appeal found that the following summary of the tender rule describes this requirement:

The rules which govern tenders are strict and are strictly applied, and where the rules are prescribed by statute or rules of court, the tender must be in such form as to comply therewith. The tenderer must do and offer everything that is necessary on his part to complete the transaction, and must fairly make known his purpose without ambiguity, and the act of tender must be such that it needs only acceptance by the one to whom it is made to complete the transaction.
Id.

The underlying principle for the tender rule is that “equity will not interpose its remedial power in the accomplishment of what seemingly would be nothing but an idle and expensively futile act, nor will it purposely speculate in a field where there has been no proof as to what beneficial purpose may be subserved through its intervention.” Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal. App. 3d 112, 118.

Further, this applies to any cause of action implicitly integrated with the voidable sale. Id. at 121. In Karlsen, the Court found that causes of action for breach of an oral agreement to delay the sale, for an accounting, and for a constructive trust failed because the plaintiff had not made a valid tender. In Arnolds Management Corp. v. Eischen (1984) 158 Cal. App. 3d 575, the Court found that causes of action for fraud and negligent misrepresentation based on the claim that the defendant had misrepresented the sale date failed because the plaintiff had not made a valid tender. The Court in Karlsen reasoned that absent an effective and valid tender, the foreclosure sale would become valid and proper. Karlsen, 15 Cal.App.3d at 121.

A review of the Plaintiffs’ First Amended Complaint reveals that each cause of action is implicitly integrated with the foreclosure proceeding:

1) The first cause of action for breach of contract claims that the foreclosure sale was caused because the Defendants breached an agreement to modify the loan;
2) The second cause of action for breach of the implied covenant of good faith and fair dealing claims that the foreclosure sale was caused because the Defendants breached an implied covenant in the agreement to modify the loan;
3) the third cause of action for estoppel claims that the foreclose sale was caused because the Defendants did not keep a promise to modify the loan;
4) the fourth cause of action for negligent misrepresentation claims that the foreclosure sale was caused because Defendants negligently misrepresented that the Plaintiffs would receive a permanent loan modification;
5) the fifth cause of action for negligence claims that the foreclosure sale was caused by the Defendants’ breach of a duty of care when they did not provide a permanent loan modification to the Plaintiffs;
6) the sixth cause of action for violation of Business and Professions code section 17200 claims that foreclosure sale was caused by the Defendants unfair business practice of depriving the Plaintiffs of their home and of monthly mortgage payments even though the Plaintiffs expected to obtain a permanent loan modification;
7) the seventh cause of action for violation of Civil Code section 2923.6 claims that the foreclosure sale violated Civil Code section 2923.6 because the Defendants did not provide a loan modification;
8) the eighth cause of action for declaratory relief claims that there is an actual dispute as to the ownership of the property because the foreclosure was wrongful; and
9) the ninth cause of action for an accounting seeks an accounting of the moneys paid and owing on the loan that was subject to the foreclosure proceedings.

Each of these causes of action is implicitly integrated with the foreclosure sale because each of them is based on allegations that the sale of the Plaintiffs’ property was improper. Accordingly, an essential element of each of the causes of action is an allegation that the Plaintiffs satisfied the tender rule.

A review of the Plaintiffs’ First Amended Complaint reveals that they did not plead that they tendered the amount due.

In their opposition, the Plaintiffs argue that they need not plead that they satisfied the tender rule because the tender rule is an equitable rule and their complaint includes legal claims. However, as noted above, to plead any cause of action for irregularity in the sale procedure, there must be allegations showing that the plaintiff tendered the amount of the secured indebtedness to the defendant. Abdallah v. United Sav. Bank (1996) 43 Cal. App. 4th 1101, 1109. There is no distinction between legal and equitable causes of action.

The Plaintiffs also argue that requiring the tender would be inequitable because the Defendants’ breach of contract and negligence caused the Plaintiffs to lose their home. Under California law, the tender rule does not apply when it would be inequitable, such as when the instrument is void. Fleming v. Kagan (1961) 189 Cal. App. 2d 791, 797. If the plaintiffs’ action attacks the validity of the underlying debt, a tender is not required since it would constitute an affirmation of the debt. Onofrio v. Rice (1997) 55 Cal.App.4th 413, 424. However, when the plaintiffs’ action claims that there was fraudulent conduct in the foreclosure procedure, then tender is required. See Arnolds Management Corp. v. Eischen (1984) 158 Cal. App. 3d 575 (holding that causes of action for fraud and negligent misrepresentation based on the claim that the defendant had misrepresented the sale date failed because the plaintiff had not made a valid tender).

There are no allegations that the deed of trust is void. There are no allegations that the underlying debt is void. Instead, the Plaintiffs’ claim is that the foreclosure occurred because the Defendants declined to provide a loan modification. This is not grounds to find that it would be inequitable to require a tender.

Further, the Plaintiffs’ allegations demonstrate that the foreclosure proceedings occurred because they stopped making payments on their loan. In paragraph 17, the Plaintiffs allege the following:

Plaintiffs stopped making payments when they could not get an answer from Defendants regarding the status of a permanent modification following the successful completion of their trial modification.

This demonstrates that the foreclosure proceedings occurred because the Plaintiffs did not make the required payments on the loan.

As noted above, the principle underlying the tender rule is that “equity will not interpose its remedial power in the accomplishment of what seemingly would be nothing but an idle and expensively futile act, nor will it purposely speculate in a field where there has been no proof as to what beneficial purpose may be subserved through its intervention.” Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal. App. 3d 112, 118. If the Plaintiffs cannot tender the amount that they owe on their note, there is no beneficial purpose to intervening because the Defendants would simply begin the foreclosure proceedings again. This would result only in an unjust benefit to the Plaintiffs, who would continue to stay in a property that they agreed to use as security for a loan on which they stopped making payments. Accordingly, it is equitable to require the Plaintiffs to satisfy the tender rule in their pleadings.

Therefore, the Court sustains the Defendants’ demurrer to each cause of action in the First Amended Complaint.

The Court does not grant leave to amend because the copy of the loan modification agreement contradicts the allegations in the complaint. Allegations contradicted by the exhibits to the complaint or by matters of which judicial notice may be taken are not assumed true for the purposes of a demurrer. Vance v. Villa Park Mobilehome Estates (1995) 36 Cal. App. 4th 698, 709. Such facts appearing in exhibits attached to the complaint are given precedence over inconsistent allegations in the complaint. Dodd v. Citizens Bank (1990) 222 Cal.App.3d 1624, 1627.

In the third cause of action for estoppel, the Plaintiffs allege that the Defendant promised to provide a loan modification. The Plaintiff alleges in paragraph 50 that the Defendant made a written promise to provide the Plaintiffs with a permanent modification provided that the Plaintiffs made all of the payments under a trial modification.

However, a review of the loan modification agreement, a copy of which is attached as untabbed exhibit A to the First Amended Complaint, reveals that the Plaintiffs’ allegations are inconsistent with the written promise that was actually made in the agreement. Paragraph 3 on page 2 of the agreement, which is labeled “The Modification”, provides that the Defendant will send a modification agreement if 1) the Plaintiff’s representations in section 1 of the agreement are true, 2) the Plaintiff complies with the requirements in section 2 of the agreement, 3) the Plaintiff provides all required information and documents, and 4) the lender determinates that the Plaintiff qualifies. This demonstrates that the Defendant agreed to provide a modification if four conditions were satisfied. This is inconsistent with the Plaintiffs’ allegation that the Defendant promised to provide a modification if the Plaintiffs made all their payments under the trial modification.
Further, the cause of action for promissory estoppel must plead the following elements:

1) the defendant made a promise;
2) the defendant should have reasonably expected that the promise will induce action or forbearance of a definite and substantial character on the part of the plaintiff;
3) the plaintiff was induced into an action or forbearance; and
4) injustice can be avoided only by enforcement of the promise.
C & K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal. 3d 1, 7-8.

Promissory estoppel is a doctrine that uses equitable principles to replace the requirement that both parties provide consideration to make an agreement legally enforceable. Id. For example, in C&K Engineering, the plaintiff solicited bids from defendant and other subcontractors for the installation of reinforcing steel in the construction of a waste water treatment plant. The plaintiff included defendant’s bid in its master bid to the public sanitation district, which accepted the bid. The defendant then refused to perform in accordance with its bid because it claimed that it had miscalculated its bid. The defendant argued that its bid did not create an enforceable contract because the plaintiff has not paid any money to the defendant.
The plaintiff brought an action to recover damages for the defendant’s refusal to perform in accordance with its bid. The Court of Appeal found that the doctrine of promissory estoppel applied to make the defendant’s bid enforceable. Promissory estoppel was shown in the circumstances because the defendant had made the bid, the defendant could reasonable expect that its bid would induce the plaintiff to act, the plaintiff was induced to act by including the bid in its master bid for the project, and injustice could be avoided only by enforcing the defendant’s bid. The doctrine of promissory estoppel was necessary to make the bid enforceable because neither party had provided consideration.

As mentioned above, the purpose of promissory estoppel is to make a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange. Youngman v. Nevada Irrigation Dist. (1969) 70 Cal. 2d 240, 249. The doctrine is inapplicable, therefore, if the promisee’s performance was requested at the time the promisor made his promise and that performance was bargained for. Id.

In Youngman, the Supreme Court found that no promissory estoppel claim was pleaded because the allegations showed that the plaintiff had provided consideration to the defendant. The plaintiff alleged that the defendant promised him that he would be granted a merit step increase in his pay each year and that plaintiff relied upon this promise in accepting employment with the defendant, continuing in its employ, and refraining from accepting a job elsewhere. Under these allegations that the defendant’s promise that the plaintiff would receive an annual raise was part of the bargain under which the plaintiff entered the defendant’s employ. The plaintiff provided consideration when he remained in his position and rendered satisfactory service to the defendant under the employment contract. The Court found that there was no need to rely upon the doctrine of promissory estoppel in these circumstances.

The same defect exists in the pending case. The modification agreement requested the Plaintiff to make payments under the trial modification agreement and to provide information and documents. The Plaintiff’s performance was bargained for because it was required in order to satisfy the requirements needed to obtain the final modification of the loan. This demonstrates that the Plaintiff’s performance was requested at the time the Defendant made the promise to make the modification and that the Plaintiff’s performance was bargained for. Accordingly, the doctrine of promissory estoppel is inapplicable in this case and the Court does not grant leave to amend the third cause of action.

Under California law, the Plaintiffs must show in what manner they can amend their complaint and how that amendment will change the legal effect of their pleading. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiffs cite this legal authority on page 10 of their opposition papers. However, they do not then follow this legal authority by presenting the means by which they can amend their pleading in order to satisfy the tender rule. At the hearing, if the Plaintiffs cannot demonstrate that they can tender the amount owed, then they cannot plead an essential element of their causes of action and the Court will not grant leave to amend.

Further, the Court does not grant leave to amend the seventh cause of action for violation of Civil Code section 2923.6 because section 2923.6 does not impose an affirmative duty on the Defendant to modify any loan. See Mabry v. Superior Court (2010) 185 Cal. App. 4th 208, 222 (finding that section 2923.6 “merely expresses the hope that lenders will offer loan modifications on certain terms). Accordingly, the Plaintiffs cannot plead a claim for violation of section 2923.6 because the Defendant’s alleged failure to provide a loan modification cannot violate the statute.

In addition, the Court does not grant leave to amend the ninth cause of action for an accounting because the Plaintiffs do not identify a balance due from the Defendants to the Plaintiffs. In order to plead a claim for an accounting, the Plaintiffs must that the Defendants caused losses and are liable to the Plaintiffs and that the true amounts of losses owed to the Plaintiffs cannot be ascertained without an accounting. Kritzer v. Lancaster (1950) 96 Cal. App. 2d 1, 6 to 7. Here, there are no allegations that the Defendants owe money to the Plaintiffs. Instead, this case arises because the Plaintiffs owe money to the Defendants and their house was sold because they did not make the required payments. Accordingly, no cause of action for accounting can be pleaded against the Defendants because they do not owe money to the Plaintiffs.

Finally, in light of the recommended ruling, the Court takes the motion to strike off calendar.

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