Brief - Aceves v. US Bank, N.A PDF

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Promissory Estoppel_Commercial Settings_Bankruptcy Aceves v. US Bank, N.A., 120 Cal. Rptr. 3d 507 (2011) California Court of Appeals

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Petitioner: Claudia Aceves, a married woman, Mortgatee Respondent: US Bank, National Association, Mortgator Cause of Action: Quiet title, slander of title, fraud, promissory estoppel, and declaratory relief. Relief Sought: Set aside the trustee’s sale and to void the trustee’s deed upon the sale of home. Basis for Dispute: Facts: -

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April 20, 2006 – Aceves obtained a loan from Option One Mortgage Corp. ($845,000) at 6.35% After two years, the rate was adjustable. Loan was for 30 years. Initial monthly payments $4,857.09 March 25, 2008 – Option One transferred interest under the deed of trust to US Bank US Bank made Quality Loan Service Corp the trustee under the deed. January 2008 – Aceves could no longer afford the monthly payments. March 26, 2008 – Quality Loan recorded “Notice of Default and Election to Sell Under Deed of Trust” Acvees filed for bankruptcy under Chapter 7 imposing an automatic stay on the foreclosure Aceves contacted US Bank and they told her that once her loan was out of bankruptcy, the bank would work with her on a mortgage reinstatement and loan modification. She was to submit documents to US Bank for its consideration. US Bank fled a motion in the bankruptcy court to lift the stay so it could proceed with a nonjudicial foreclosure. November 12, 2008 – Aceves bankruptcy attorney received a letter requesting Aceves’s attorney agree in writing to allow American Home to contact Aceves directly to explore loss mitigation possibilities. In reliance on US Bank’s promise to work with her, Aceves did not oppose the motion to lift the bankruptcy stay and decided not to seek bankruptcy relief under Chapter 13. December 4, 2008 – Bankruptcy court lifted the stay. December 9, 2008 – No one from US Bank or American Home contacted Aceves but US Bank scheduled Aceves’s home for public auction on January 9, 2009. January 2, 2009 – Samantha from American Home told Aceves that American Home had mistakenly decided not to offer her any assistance and that they incorrectly thought Aceves’s loan had been discharged in bankruptcy; instead, Aceves had merely filed for bankruptcy. The new balance on the loan was $965, 926. 22. New monthly payment: $7,200; $6,500 deposit was due immediately. January 9, 2009 – home was sold at a trustee’s sale to US Bank. February 11, 2009 – US Bank served Aceves with a 3-day notice to vacate the premises and, a month later, filed an unlawful detainer action against her and her husband. Aceves and her husband vacated the premises during the eviction proceedings.

Aceve’s Argument: - Claim for PE was adequately pleaded US Bank’s Argument: - Even if Aceves had pursued relief under chp 13, she could not have afforded the payments under a bankruptcy plan - An oral promise to postpone either a loan payment or a foreclosure is unenforceable.

Promissory Estoppel_Commercial Settings_Bankruptcy Madden o A contract in writing may be modified by a contract in writing or an oral agreement to the extent that the oral agreement is executed by the parties…

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Procedural History: The trial court said that the foreclosure took place. There was no promissory fraud or anything that deluded Aceves under the circumstances. They entered an order sustaining the demurrer without leave to amend and a judgment in favor of US Bank. Aceves appealed. Issue1: Was there promissory estoppel? Rule: The elements of a promissory estoppel claim are: 1) A promise clear and unambiguous in its terms; 2) reliance by the party to whom the promise is made; 3) the reliance must be both reasonable and foreseeable; and 4) the party asserting the estoppel must be injured by his reliance. Sub-Issue1: Was the promise clear and unambiguous? Rule: a promise is an indispensable element of the doctrine of promissory estoppel. The promise must be clear and unambiguous in its terms. To be enforceable, a promise need only be “definite enough that a court can determine the scope of the duty, and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages. That a promise is conditional does not render unenforceable or ambiguous. Application: US agreed to work with Aceves on a mortgage reinstatement and loan modification if she no longer pursued relief in the bankruptcy court. This is a clear and ambiguous promise. It indicates that US Bank would not foreclose on Aceve’s home without first engaging in negotiations with her to reinstate and modify the loan on mutually agreeable terms. The promise was to negotiate. Her estoppel claim is not based on a promise to make a unilateral offer but on a promise to negotiate in an attempt to reach a mutually agreeable loan modification. Sub-Issue2: Was there reliance? Conclusion: Aceves relied on US Bank’s promise by declining to convert her chapter 7 bankruptcy proceeding to a chapter 13 proceeding, by not relying on her husband’s financial assistance in developing a chapter 13 plan, and by not opposing US Bank’s motion to lift the bankruptcy stay. Sub-Issue3: Was the reliance reasonable and foreseeable? Rule: Promissory estoppel applies whenever a promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance would result in an injustice if the promise was not enforced. If the conduct of the ∏ in the light of his own intelligence and information was manifestly unreasonable…he will be denied recovery. A mere hopeful expectation cannot be equated with the necessary justifiable reliance. Application: US Bank promised to work with Aceves to reinstate and modify the loan. That would have been more beneficial to Aceves than the relief she could have obtained under Chapter 13. By promising to work with Aceves to modify the loan in addition to reinstating it, US Bank presented Aceves with a compelling reason to opt for negotiations with the bank instead of seeking bankruptcy relief. Conclusion: Aceves reasonably relied on US Bank’s promise. US Bank reasonably expected her to so rely; and it was foreseeable that she would do so. (is this a truism?)

Promissory Estoppel_Commercial Settings_Bankruptcy

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Sub-Issue4: Did Aceves detrimentally rely on the promise? Application: Here’s a few of the rights that Aceves sacrificed by deciding to forgo a chapter 13 proceeding: 1) A chapter 7 can convert to a chapter 13 at any time without court approval, so long as the debtor is eligible for relief under the new chapter. 2) Aceves could have cured the default, reinstating the loan to pre-default conditions 3) She would have had reasonable time – maximum 5 years – to make up the arrearages. 4) By complying with a bankruptcy plan, Aceves could have prevented US Bank from foreclosing on the property. Damages available on a breach of claim: Because this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure. Main Conclusion: Aceves had adequately alleged those facts. Issue2: Fraud Rule: The elements of fraud are similar to the elements of promissory estoppel, with the additional requirements that a false promise be made and that the promisor know of the falsity when making the promise. Court’s Holding(s): The holding and the judgment are reversed to the extent that they dismissed the claims for promissory estoppel and fraud. All other respects, judgment affirmed. Appellant is entitled to costs on appeal.

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Millions of foreclosure cases arose out of the economic crisis of 2008.

Dixon (2011, Mass.) -

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Conduct more egregious than Aceves. Court found that the ∏ mortgagors stated a cause of action under the doctrine of promissory estoppel sufficient to enjoin the ∆ bank from proceeding with a foreclosure sale. Dixons sought to renegotiate their loan, bank told them they would have to stop making payments on their existing loan, which was current, and provide financial info before it could engage in negotiations. The Dixons did so but the bank proceeded to initiate foreclosure proceedings anyway. The economic crisis also raised a number of other difficult issues dealing with the enforceability of contracts when dramatically changed circumstances occur. In many cases that we read, the ∏ succeeded in convincing the court that her pleadings were sufficient and they withstood a demurrer or similar motion to dismiss. In many situations, the degree of success on the ∏s part will persuade the ∆ to settle the case rather than carry on with (or pay attorney fees for) further litigation. Defendant may ultimately prevail at trial. This happened in the Aceves case. A breach of promise is actionable under contract or promissory estoppel theory. A breach of promise may be fraudulent – if the promisor did not intend to perform the promise at the time the promise was made.

4 Promissory Estoppel_Commercial Settings_Bankruptcy Madden - Rest. 2nd of Torts §530 – o A representation of the maker’s own intention to do or not do a particular thing is fraudulent if he does not have the intention. - To plead a fraud claim: The plaintiff must include in her complaint an allegation that the ∆ did not intend to keep its promise when the promise was made. - Since it’s promulgation in the 1930s, §90 has been applied to enforce a wide variety of promises in commercial settings. - Courts deny recovery when the ∆ fails to make a promise on which liability could be based or when the ∏ failed to establish a detrimental reliance. - Rest. 2nd §90 retained and expanded doctrine from Rest. 1st §90. o Enforcement to charitable subscriptions even without a showing of detrimental reliance. o Added the possibility of a third-party reliance, by indicating that the remedy to be awarded “may be limited as justice requires” o Deleted the requirement that in order for reliance to be protectable it must be definite and substantial. - Under the CISG, Article 16(2)(b) recognizes reliance, perhaps a reliance claim intended to establish a firm offer would be preempted by that provision. - Without bankruptcy relief, debtors would be unable to function as part of the economic life of the society. At the same time, bankruptcy process can be misused by debtors and the law contains a number of provisions to protect creditors from bad faith use of the process. o Aceves: a creditor may feel that the debtor is abusing the process, but if the debtor is asserting a right granted by law, that is not abuse.

Comment: The Status and Future of Promissory Estoppel -

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It started as an subcategory of contract law but evolved into its own distinct theory of action. Professor Knapp – perhaps the most radical and expansive development of this century in the law of promissory liability. 1980 may have been the high-water mark for promissory estoppel. Since the early 1980s many scholars have questioned the intellectual foundations of promissory estoppel. Llewellyn, principal architect of the UCC, strongly believed that reliance should play no role in enforcing commercial promises. (interesting, since UCC governs commercial activity – right?) A number of scholars have argued for “assent-based” theories of liability, less focused on reliance. However, it is less important to reflect on scholars opinion than to focus on the extent to which the doctrine has been applied in courts. o Virtually every jurisdiction has accepted the doctrine. o Evidence is conflicting about the extent to which courts have used the doctrine favorably. Knapp @ turn of the century – o For our contract law system to work property we must have law and equity. Equity without law would be tyranny indeed – shapeless, unpredictable, reflecting nothing more than the judge’s personal predilections. Law without equity can be tyranny, too – cold and unforgiving, etc. o With the aid of equitable doctrines like promissory estoppel to counter-balance the weight of legal rules, the courts in this area can continue the never-ending process of tightrope-walking that is contract decision-making. Without them, we are back where were a century ago....