Opinion
Plaintiff Sondra S. Sutherland owned a condominium that sustained severe damage in an earthquake. Sutherland contacted her mortgage company, explained what had happened, and stated that she had to move out of the damaged unit and rent another residence. The mortgage company agreed to put a “stop” on her account for three months, during which time she did not have to make any payments. Sutherland believed that the “stop” period was intended to give her a financial break to deal with the
A week before the end of the “stop” period, the mortgage company informed Sutherland that her next scheduled payment had to include not only the regular monthly amount but also the sum of the three months’ payments not made during the “stop” period. Sutherland could not afford that sizable a payment, so she sent the mortgage company a check for one month only. The mortgage company returned the check as an improper partial payment and declared her in default.
Sutherland filed this action against the mortgage company, alleging several causes of action and seeking declaratory and injunctive relief to prevent foreclosure on her home. The trial court granted summary judgment for the mortgage company. We conclude that some, but not all, of Sutherland’s causes of action raised triable issues of material fact. Accordingly, we reverse the summary judgment with directions to enter summary adjudication as to certain claims.
Background
In June 1992, Sutherland bought a condominium located at 18555 Collins Street, unit C-10, Tarzana, California (the property). The sales price was $105,000, not including closing costs, taxes, or other fees. Sutherland made a down payment of approximately $7,000 and financed the balance ($101,100) through Funders Mortgage Corporation of America (Funders). She executed a note and deed of trust in favor of Funders. As a condition of receiving the loan, Sutherland was required to obtain mortgage insurance from the United States Department of Housing and Urban Development (HUD).
In July 1992, Funders transferred the loan to defendant Barclays American/Mortgage Corporation (Barclays) for servicing. At that time, the note and trust deed were assigned to Barclays. Sutherland made all of her loan payments on a timely basis through January 1994.
On January 17,1994, an earthquake measuring 6.7 on the Richter scale hit about 2.5 miles from the property. The quake, commonly known as the Northridge earthquake, rendered Sutherland’s condominium uninhabitable,
Three days after the earthquake, Sutherland telephoned Barclays and spoke with “David” in collections. She described the damage to the condominium and stated that she needed to move out and rent an apartment. David told her not to worry since Barclays would put a three-month “stop” on her account. He said that during the three-month period, no payments would be due, no notices would be sent to her about any delinquencies, and no derogatory information would be reported to any credit agencies. David also told Sutherland that she should call again if she needed more time before resuming her mortgage payments but that she should call in any event in order to let Barclays know about her status. In reliance on David’s representations, Sutherland did not make any mortgage payments for the months of February, March, or April 1994. Instead, she used that money for extraordinary expenses occasioned by the earthquake.
On March 10, 1994, Sutherland wrote to Barclays, expressing an interest in “negotiat[ing] with you for a principal reduction, reduction of interest payments, and/or a more lengthy deferment of my mortgage payments.” On April 20, 1994, Greg Craig, a Barclays employee, called Sutherland and asked if she would be making her May payment. She explained that she was waiting for a response to her March 10 letter, and she reiterated her desire to further postpone her mortgage payments. Craig indicated that someone else from Barclays would contact her.
Within a couple of days, Sutherland received a call from Bill Carter. He told her that Barclays expected her to make the February, March, and April payments together with the May payment or to make up the back payments within a short period of time.
2
Sutherland replied that she could not afford that large a payment and that she had expected the three payments to be added to the end of the loan period. She also stated that she would not have agreed to such a “balloon” payment since she had needed the mortgage money during the three-month “stop” period to cover expenses incurred as a result of the earthquake. Carter said that several other homeowners were also surprised by Barclays’s request for immediate repayment and that Barclays had not communicated its expectations to customers very well. Sutherland
On May 4, 1994, Sutherland talked to Carter, and he again indicated that he would contact HUD about her mortgage. He also stated that he would send Sutherland a HUD form for her to complete. In light of Carter’s statements, Sutherland did not send Barclays her May payment during the 15-day grace period. 4
Instead of hearing from Carter, Sutherland received a letter dated May 12, 1994, which stated: “Your situation is serious!! You could lose your home!! [¶ The mortgage payments for the months of 2-1-94 thru 5-1-94 are due. A total of $2,935.52 is owed in back payments and late charges. Unless this amount is paid immediately or a plan for repayment is arranged, we will begin foreclosure of the mortgage and you may lose your home. [¶ However, ... the Department of Housing and Urban Development (HUD) may be able to help you. [¶ HUD may be able to accept an assignment of your mortgage. If HUD accepts an assignment, HUD would become your mortgagee. You would then make your mortgage payments to HUD and HUD would work with you in an effort to help you keep your home. [¶ ... [¶ We are enclosing a copy of HUD-92068F, request for financial information. Although it is voluntary on your part to furnish the information, failure to provide the information may cause you to lose your home. . . .” The letter further indicated that the completed HUD form should be returned to Barclays. With the sending of this letter, Barclays declared Sutherland to be in default based on her failure to make the payments for February, March, and April 1994. 5
On May 24, 1994, Sutherland sent a letter to Barclays explaining her prior communications with company employees and stating her belief that Bar-clays was acting improperly by demanding that she make an immediate lump
Barclays considered the check for the May payment to be a “partial” payment because it did not include the amount for the three-month “stop” period. Unwilling to accept a “partial” payment, Barclays returned the check to Sutherland uncashed. By letter dated June 24, 1994, Barclays informed Sutherland that “we cannot help you anymore in trying to save your home. [¶ We have decided that your case meets the Department of Housing and Urban Development’s (HUD) standards for acceptance of an assignment. Therefore we will ask HUD to consider acceptance of assignment of your mortgage from us. [¶ ... If HUD accepts the assignment, HUD will become your mortgagee and you may be able to keep your home. HUD will work out a payment plan that may help you catch up on your back payments. You do not need to do anything right now. HUD will write to you soon. . . .” (Italics added.)
Over the next several months, HUD requested additional information from Sutherland. Each time, she promptly complied. On December 10, 1994, Sutherland spoke with Walter Jackson, an employee of HUD. He told her that she did not qualify for HUD’s loan assignment program because the reasons for the default on her loan were the earthquake and Barclays’s misleading conduct in declaring a default. Jackson explained that HUD had decided as a policy matter not to take over loans on properties damaged in the earthquake since the agency would then be “stuck with a bunch of damaged properties.” When Sutherland told Jackson that Barclays had falsely declared her account to be in default, he responded that disputes of that nature had to be resolved between the mortgage company and the borrower.
Because Jackson had indicated that HUD would not take over her loan, Sutherland attempted to resume her mortgage payments. She wrote to Bar-clays on January 14, 1995, stating: “I am trying one more time to submit my monthly payment as a show of good faith; a check for $768.96 representing the January 1995 payment is enclosed.” In response, by letter dated January 27, 1995, Barclays returned the check uncashed, explaining: “As you are aware, your account is currently due the February, 1994 mortgage payment and is under review by the Department of Housing and Urban Development for [assignment of your mortgage.”
On February 9, 1995, Sutherland spoke to Carter at Barclays about a possible forbearance agreement. Sutherland wanted to know if such an agreement would be a “true” forbearance, i.e., an agreement suspending payments while it was in effect and adding them to the end of the loan period. Carter responded that a forbearance agreement would merely prevent Barclays from foreclosing until the property was fully repaired; it would not add the payments to the end of the loan period or permit Sutherland to resume regular monthly payments in the event HUD declined an assignment request.
As of March 1, 1995, Sutherland had not received a proposed forbearance agreement. On that day, she filed this action against Funders (the original mortgagee) and Barclays. By letter dated March 15, 1995, Barclays informed Sutherland that, effective April 1, 1995, Norwest Mortgage, Inc. (Norwest), would begin servicing her loan. Sutherland then brought Norwest into the litigation as a Doe defendant. 6 Sutherland dismissed Funders from the action because it had brokered the loan to Barclays in 1992, long before her loan problems began.
The complaint alleged seven causes of action. The first, for declaratory relief, sought a declaration that Sutherland was not in default under the note or deed of trust. The second, for breach of contract, alleged that Barclays had wrongfully refused to accept her mortgage payments beginning in May 1994 and had breached the three-month “stop” payment agreement by declaring her in default. The third cause of action alleged a breach of the covenant of good faith and fair dealing. In the fourth cause of action, Sutherland alleged that Barclays had negligently misrepresented the terms of the “stop” payment agreement, knowing that it would later demand that she make a lump-sum payment covering those three months. The fifth cause of action alleged that Barclays had denied the existence of the “stop” payment agreement in bad faith. The sixth cause of action sought damages for negligent infliction
In January 1996, Barclays filed a motion for summary judgment or, in the alternative, for summary adjudication of issues as to each cause of action. After full briefing and oral argument, the trial court granted the motion for summary judgment. The trial court reasoned that Barclays had fully complied with the three-month “stop” payment agreement and that, in any event, since the agreement was not in writing, Barclays could foreclose on the property under the written terms of the note and deed of trust. Judgment was entered in favor of Barclays and Norwest. Sutherland filed a timely notice of appeal.
Discussion
Summary judgment is appropriate if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).)
“A defendant seeking summary judgment has met the burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action cannot be established [or that there is a complete defense to that cause of action]. . . . Once the defendant’s burden is met, the burden shifts to the plaintiff to show that a triable issue of fact exists as to that cause of action. ... In reviewing the propriety of a summary judgment, the appellate court independently reviews the record that was before the trial court. . . . We must determine whether the facts as shown by the parties give rise to a triable issue of material fact. . . . In making this determination, the moving party’s affidavits are strictly construed while those of the opposing party are liberally construed.”
(Hanooka
v.
Pivko
(1994)
A. Declaratory Relief and Breach of Contract
Sutherland’s request for declaratory relief (to the effect that she is not in default) and her breach of contract claim both rest on the same theory:
In moving for summary judgment, Barclays argued that it had fully performed the oral agreement since it had not expressly stated that the three payments would be added to the end of the loan period. Alternatively, Barclays asserted that the oral agreement, regardless of its terms, could not modify the written provisions of the note and deed of trust, which authorized Barclays to declare Sutherland in default. We conclude that neither argument entitled Barclays to judgment as a matter of law.
1. The Interpretation of the Oral Agreement
Barclays contends that it complied with all terms of the three-month “stop” payment agreement by allowing Sutherland to skip three payments, by not sending delinquency notices to her during that period, and by not reporting her to credit agencies. As Barclays sees it, the agreement to put a three-month “stop” on Sutherland’s account meant that, as a matter of law, she owed four months’ payments at the end of the “stop” period. We do not see it that way.
“A contract may be explained by reference to the circumstances under which it is made, and the matter to which it relates.” (Civ. Code, § 1647.) Further, where the terms of an agreement are ambiguous, they “should be interpreted most strongly against the party who caused the uncertainty to exist.” (Id., § 1654.) Finally, “when different constructions of a provision are otherwise equally proper, that is to be taken which is most favorable to the party in whose favor the provision was made.” (Code Civ. Proc., § 1864.)
Barclays agreed to put a three-month “stop” on Sutherland’s account because of the financial crisis she was facing as a result of the Northridge earthquake. Sutherland informed Barclays that she had to move out of the condominium and rent another place. She requested a break in the mortgage payments precisely because she needed the money for other expenses—those occasioned by the earthquake. Arguably, Barclays should have understood the purpose of Sutherland’s request; if an earthquake victim needs immediate relief from her loan payments, it does little good to require that the excused payments be made three months later in a lump sum. Barclays’s interpretation of the “stop” payment agreement would not free up the money for other purposes. For that reason, it is understandable that Barclays’s other
Even if we ignore the circumstances surrounding the parties’ oral agreement, we cannot conclude that an agreement to “stop” a loan account for three months means that, as a matter of law, the excused payments will all be due in the fourth month. A mortgagee’s statement that it will temporarily “stop” an account does not indicate with reasonable certainty when the excused payments have to be made. Such a statement is ambiguous and should arguably be construed in favor of the borrower. (See Civ. Code, § 1654.) Moreover, to the extent the parties’ competing interpretations of the “stop” payment agreement are equally plausible, the agreement should be interpreted in favor of the borrower, since it was for her benefit that the agreement was made. (See Code Civ. Proc., § 1864.) 7
2. Oral Modification of a Written Agreement
Barclays contends that an oral modification of the note and deed of trust is unenforceable as a matter of law. According to Barclays, a valid modification had to be in writing. Under this reasoning, even if Barclays had told Sutherland that she could skip three payments and that they would be added to the end of the loan period, it could have declared her in default for missing any of those payments. This position is without merit.
As our Supreme Court stated more than 70 years ago: “ It would certainly be unreasonable to hold . . . that the defendant can now insist upon a forfeiture of the contract on account of the failure to make such payments. “We know of no principle of law . . . which will permit a party to a contract, who is entitled to demand the performance by the other party of some act within a specified time, and who has consented to the postponement of the performance to a time subsequent to that fixed by the contract, and where the other party has acted upon such consent, and in reliance thereon has permitted the contract time to pass without performance, to subsequently recall such consent and treat the non-performance within the
We recognize that “[i]n
the absence of consideration,
a gratuitous oral promise to postpone a sale of property pursuant to the terms of a trust deed ordinarily would be unenforceable under [Civil Code] section 1698.”
(Raedeke
v.
Gibraltar Sav. & Loan Assn.
(1974)
Here, Sutherland relied to her detriment on Barclays’s statement that she could postpone three mortgage payments. Having orally agreed to such a postponement, Barclays cannot rely on the absence of a written agreement in order to declare Sutherland in default for missing those payments.
3. Sutherland’s Failure to Make Payments After the “Stop” Period
Putting aside the question of when the three excused payments were due, Barclays maintains that Sutherland nevertheless defaulted on the loan by
The “stop” period expired at the end of April 1994. Thus, Sutherland had to commence making regular monthly payments in May 1994. She did so. On May 24, 1994, Sutherland mailed Barclays a check for $721.91 together with the May payment coupon. However, Barclays returned the check uncashed because Sutherland had not included the amounts for the three months covered by the “stop” period. Barclays viewed the check as an improper “partial” payment. Then, in June, Barclays informed Sutherland that HUD was considering whether to take over her loan and that, in the meantime, “[y]ou do not need to do anything.” When a HUD official told Sutherland in December 1994 that the agency would not take over her loan, she again sent a check in the monthly amount to Barclays. The company also returned that check uncashed, stating that Sutherland still needed to make the February 1994 payment.
These events preclude a determination on summary judgment that Sutherland defaulted on the loan after the “stop” period. Beginning in May 1994, Barclays made clear that it would not accept a check in the regular monthly amount unless Sutherland first paid the amounts for the three-month “stop” period. It returned her monthly checks for May 1994 and January 1995. Moreover, it declared her in default on May 12, 1994, for failure to pay for the preceding three months. Finally, Barclays’s letter concerning the HUD assignment program suggested that Sutherland did not need to make payments while the agency considered whether to take over her loan.
In these circumstances, we cannot say that, as a matter of law, Sutherland was obligated to continue making regular monthly payments after May 1994. Surely, Barclays would have returned them. The law did not require Sutherland to engage in futile or useless acts. (See Civ. Code, § 3532.) Having returned Sutherland’s May 1994 payment, informed her that such “partial” payments would not be accepted, and declared her in default on May 12, 1994, Barclays can hardly maintain that Sutherland should have been making regular payments after the three-month “stop” period.
Accordingly, Barclays was not entitled to judgment on the causes of action for declaratory relief and breach of contract.
B. Covenant of Good Faith and Fair Dealing
In the complaint, Sutherland alleged that Barclays breached the covenant of good faith and fair dealing implied in the three-month “stop”
“ ‘ “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” . . . This duty has been recognized in the majority of American jurisdictions, the Restatement, and the Uniform Commercial Code. [¶ The covenant of good faith finds particular application in situations where one party is invested with a discretionary power affecting the rights of another. Such power must be exercised in good faith.”
(Carma Developers (Cal.), Inc.
v.
Marathon Development California, Inc.
(1992)
Nevertheless, although the covenant is implied into every contract, its breach does not constitute a tort in the present context. The “general rule preclud[es] tort recovery for noninsurance contract breach, at least in the absence of violation of ‘an independent duty arising from principles of tort law.’ ”
(Freeman & Mills, Inc.
v.
Belcher Oil Co.
(1995)
Thus, Sutherland is limited to contract remedies on her claim for breach of the covenant.
C. Negligent Misrepresentation
In the complaint, Sutherland alleged that Barclays had represented that it would put a three-month “stop” on her account (and thereby postpone the excused payments to the end of the loan period) when, in fact, it intended all along to demand that the payments be made four months later.
In moving for summary adjudication as to the negligent misrepresentation claim, Barclays argued that it had complied with the terms of the three-month “stop” agreement, i.e., it had not made any misrepresentations since
We have already held that the trier of fact must determine when the excused payments were to be made—either at the end of the “stop” payment period (as Barclays contends) or at the end of the loan period (as Sutherland contends). Plainly, the evidence submitted by Sutherland was sufficient to create a triable issue of fact as to whether Barclays misrepresented the terms of the “stop” payment agreement. Consequently, Barclays is not entitled to summary adjudication on the negligent misrepresentation claim.
D. Bad Faith Denial of Existence of Contract
In
Seaman’s Direct Buying Service, Inc.
v.
Standard Oil Co.
(1984)
First, Barclays did not deny the existence of the “stop” payment agreement in bad faith or at all. The parties essentially agree on what was said. They disagree on the meaning of the words used. However, “[disputes as to the terms of a contract or the meaning or legal effect of those terms do not constitute a denial of contract existence.”
(DuBarry Intenat., Inc.
v.
Southwest Forest Industries, Inc.
(1991)
Second, in
Freeman & Mills, Inc.
v.
Belcher Oil Co., supra,
In this case, neither fairness nor public policy warrants a departure from the general rule. As to fairness, the courts place great weight upon “ ‘. . . the ability of litigants to foresee coming change in the law . . . .’ ”
(Newman
v.
Emerson Radio Corp., supra,
As to the public policy factors supporting retroactive application of
Freeman & Mills,
we agree with the analysis of
Norager
v.
Nakamura
(1996)
Accordingly, the trial court properly adjudicated the Seaman’s cause of action in Barclays’s favor.
E. Negligent Infliction of Emotional Distress
Sutherland’s negligent infliction claim alleged that Barclays was “incompetent” and “inept” in handling her request for a payment moratorium after the earthquake. She complains that she had to deal with multiple representatives of Barclays, was asked to submit the same materials on more than one occasion, received the wrong form letters, was “harassed” to make payments she did not owe, and was improperly threatened with foreclosure.
At most, the negligent infliction claim alleges that Barclays mistreated Sutherland in breaching the three-month “stop” payment agreement. However, there is no duty, sounding in tort, that requires a breach of contract to be accomplished in a polite or administratively efficient manner. Sutherland’s allegations of “mistreatment” do not change the fundamental nature of
F. Request for Injunctive Relief
The complaint contained a request for an injunction to prevent Barclays from foreclosing on Sutherland’s property. In granting summary judgment, the trial court found that the request for injunctive relief was moot because all of Sutherland’s other causes of action—on which an injunction would have been based—were without merit. Since we have held that some of those causes of action were improperly dismissed, it follows that the request for injunctive relief is no longer moot. Consequently, this claim must be reinstated.
G. Public Policy Claim
Sutherland argues that we should recognize a new cause of action where a mortgagee falsely declares a mortgagor to be in default with the intent of assigning the loan to HUD and collecting on federal mortgage insurance. According to Sutherland, the mortgagee in that situation is attempting to defraud the federal government.
We decline to address this contention since it was raised for the first time on appeal. The complaint did not plead such a theory of liability, and the issue was not addressed during the summary judgment proceedings. It is well established that “ ‘ [a] motion for summary judgment must be directed to the issues raised by the pleadings. The [papers] filed in response to a defendant’s motion for summary judgment may not create issues outside the pleadings and are not a substitute for an amendment to the pleadings.’ . . . [A] defendant ‘[is] not required to refute liability on some theoretical possibility not included in the pleadings.’ ”
(Nash
v.
Fifth Amendment
(1991)
Disposition
The judgment is reversed. The trial court is directed to grant defendants’ alternative motion for summary adjudication with respect to the fifth cause of action (bad faith denial of existence of contract), the sixth cause of action (negligent infliction of emotional distress), and the claim for tort relief on the third cause of action (breach of the covenant of good faith and fair dealing) and to deny the motion for summary judgment/summary adjudication in all other respects. Plaintiff is entitled to costs on appeal.
Spencer, P. J., and Ortega, J., concurred.
On March 28, 1997, the opinion was modified to read as printed above.
Notes
In the aftermath of the quake, the value of the condominium dropped from around $109,000 to approximately $51,000.
According to Carter, Sutherland needed to pay approximately $2,887 in May instead of her usual monthly payment of $721.91.
Sutherland requested and received payment moratoriums from other creditors, including Santa Monica Bank and most of her credit card companies. Each of those creditors added the excused payments to the end of the loan period and allowed Sutherland to resume regular monthly payments at the end of the moratorium.
Although Sutherland’s monthly payments were “due” on the first day of each month, she had a 15-day grace period during which no late charge would apply. After the grace period, Barclays could assess a late charge equal to 4 percent of the overdue amount. If Sutherland failed to make a payment by the end of the month, Barclays could declare her in default.
Barclays could not declare a default as to the May payment since Sutherland had until the end of the month to make it (albeit with a late charge if the payment was received after May 15). (See fn. 4, ante.)
Since it appears that Norwest is Barclays’s assignee, we will simply refer to them collectively as Barclays.
We are not suggesting that the “stop” payment agreement should be construed in Sutherland’s favor as a matter of law. Based on the record before us, we conclude that the interpretation of the agreement presents a question to be resolved by the trier of fact.
When Raedeke and California Securities Co. were decided, Civil Code section 1698 provided in its entirety: “A contract in writing may be altered by a contract in writing, or by an executed oral agreement, and not otherwise.” (Amends, to Codes 1873-1874, ch. 612, § 193, p. 243.) In 1976, a new section 1698 was enacted which states in part: “A contract in writing may be modified by a contract in writing . . . [or] by an oral agreement to the extent that the oral agreement is executed by the parties. . . . Nothing in this section precludes in an appropriate case the application of rules of law concerning estoppel . . . .” (Civ. Code, § 1698, subds. (a), (b) & (d), added by Stats. 1976, ch. 109, § 4, p. 171, italics added.)
Sutherland attempts to save her negligent infliction claim by relying on authorities concerning a claim for intentional infliction of emotional distress. The elements of those two causes of action are quite different. (See 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, §§ 403-406, pp. 483-487; 6 Witkin, op. cit. supra, Torts, § 838, pp. 194-195.) Because Sutherland has not pleaded an intentional infliction claim, her authorities are inapposite.
Similarly, we decline Sutherland’s request to order the trial court to (1) reinstate her preferential trial date, (2) reschedule a hearing on her motion for discovery sanctions, and (3) impose sanctions on defendants and their counsel for alleged improper conduct in connection with the summary judgment motion and related proceedings. These matters can be pursued on remand.