Metropolitan News-Enterprise


Monday, October 16, 2017


Page 1


Court of Appeal:

Bank Not Obliged to Accept Higher Offer for House

There’s No Breach of Covenant of Good Faith and Fair Dealing in Absence of Contract—Raye


By a MetNews Staff Writer


A couple whose house was purchased at a foreclosure sale by Bank of America after they failed to make their mortgage payments had no cause of action against the bank for selling the property to a third party for $1.4 million even though they had offered to repurchase it, in an all cash deal, for $2.2 million, the Third District Court of Appeal held on Friday.

Presiding Justice Vance Raye wrote the opinion, which was not certified for publication, judgment on the pleadings in favor of the bank.

The plaintiffs, Christian M. Steele and Shirley C. Steele, sued on a theory that the bank breached the covenant of good faith and fair dealing that is implied in every contract. The problem the trial judge saw was that the Steeles pointed to no contract between them and the bank that applied to an offer to repurchase, and Raye agreed.

Placer Judge Quoted

The opinion quotes Placer Superior Court Judge Michael Jones as saying:

 “Such a claim…requires a plaintiff allege a valid contract between the parties. Moreover, the implied covenant cannot be extended to create obligations not contemplated by the contract….Plaintiffs do not sufficiently allege the underlying contract that purportedly supports the cause of action.

“So far as it is implied that the deed of trust and note are the purported contract, there are insufficient facts alleged to establish the creation of such an obligation.”

Raye also quoted what the Steeles had to say. They argued:

“Logically the implied covenant applies when there is not a contract but the parties are negotiating a contract. A party to an actual contract already has a remedy for breach thereof and thus the implied covenant applies in unique circumstances such as the one alleged in this action. There is no authority that requires anyone to enter into a contract with another party or even to negotiate fairly. However when unique circumstances arise and the party [sic] breach what the implied covenant stands for then a cause of action is so stated. The facts of the instant action set forth such circumstances so as to state a cause of action.”

Assertion Unsupported

Siding with Jones, Raye wrote:

“Notably, the Steeles provide no support for this assertion and legal precedent undercuts their argument.

“The covenant of good faith and fair dealing does not exist independently of the underlying contract. Indeed, the prerequisite for any breach of good faith and fair dealing is the existence of a contractual relationship between the parties….The implied covenant must rest upon the existence of a specific contractual obligation….As the trial court correctly found, the Steeles fail to allege the underlying contract that supports the cause of action for breach of the implied covenant.”

The Steeles had been allowed to remain in the house for four years after the bank came into ownership of it. They proclaimed that there is a mandate of the Federal Housing Finance Agency—which oversees Fannie Mae and Freddie Mac—that where a home is foreclosed upon and the former owners remain in occupancy for three years, they have the right to purchase it at fair market value.

Rate again quoted Jones, who held:

“The allegations, however, are so conclusory and general in nature that it cannot be ascertained what federal mandate is being invoked or plaintiffs’ standing to sue under such a purported mandate.”

And he again quoted the Steeles, who maintained:

 “Defendant’s motion alleged there is no allegation Bank of America is subject to the directive issued by FFHA [sic] or that plaintiff has standing. However, Bank of America set forth no authority that it is not subject to the FFHA [sic] or that plaintiff did not have standing.”

The Steeles, Raye said, “misunderstand where the burden falls,” declaring that it falls on them. He continued:

“In addition, a private right of action to enforce a federal law must be unambiguously conferred by Congress….The Steeles provide no facts to support a private right of action under the FHFA and the trial court did not err in finding the cause of action insufficiently pled.”

The plaintiffs insisted that they stated a cause of action under the Unfair Competition Law based on “unfairness.” Ray said:

“The Steeles fail to cite any specific facts or authority to support their UCL claim. We cannot assume the task of rooting out the alleged error in the trial court’s ruling. It is counsel’s responsibility to state, through argument and citations to authority, why the trial court erred. We consider contentions supported by neither argument nor citation to authority to be without foundation and waived.”

The case is Steele v. Bank of America, C081340.


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