Court: "Promissory Estoppel" Could Make Lender’s Verbal Agreement To Halt F'closure Sale Enforceable, Even Absent Consideration For Promise To Stall

Lexology reports:

• The latest case following the mortgage meltdown underscores the need for lenders to be deliberate and clear in both their external and internal communications. In Garcia v. World Savings, FSB, 183 Cal. App. 4th 1031 (2010), the appellate court determined that the lender’s verbal agreement with the borrower to postpone a foreclosure sale could be enforceable, even absent consideration for the lender’s promise to postpone. The appellate court found that the loan officer’s telephonic assurance to the borrower that he could, and would, briefly extend the pending foreclosure sale under certain conditions was reasonably relied upon by the borrower.(1)

For more, see Wrongful foreclosure – verbal assurance that foreclosure sale will be postponed may be enforceable (requires paid subscription; if no subscription TRY HERE, or TRY HERE, then click link for the story).

(1) The homeowners brought suit against their lender for wrongful foreclosure, breach of contract, promissory estoppel, and unfair business practices. The trial court granted the lender's motion for summary judgment, concluding that the foreclosure was valid, that the breach of contract claim was unsupported by consideration, that the promise allegedly made was insufficiently specific to support promissory estoppel and that the unfair business practices claim had no basis. The California appellate court reversed the lower court ruling with respect to the claim for promissory estoppel, but otherwise affirmed the ruling.

With respect to the claim for promissory estoppel, the court stated (bold text is my emphasis, not in the original text; all case law links may require free registration at Findlaw.com):

• As a general rule, a gratuitous oral promise to postpone a foreclosure sale or to allow a borrower to delay monthly mortgage payments is unenforceable. (Raedeke, supra, 10 Cal.3d at p. 673; California Securities Co. v. Grosse (1935) 3 Cal.2d 732, 733; Secrest v. Security National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 547; Sutherland v. Barclays American/Mortgage Corp. (1997) 53 Cal.App.4th 299, 312; Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 121; Stafford v. Clinard (1948) 87 Cal.App.2d 480, 481.) fn. 9

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• The absence of consideration or benefit to the promisor does not, however, defeat a claim based on promissory estoppel. fn. 10 The doctrine of promissory estoppel "make[s] 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; accord, Raedeke, supra, 10 Cal.3d at p. 672.)

• "Under this doctrine 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." (Youngman v. Nevada Irrigation Dist., supra, "70 Cal.2d at p. 249.)

• "'The vital principle is that he who by his language or conduct leads another to do what he would not otherwise have done shall not subject such person to loss or injury by disappointing the expectations upon which he acted.'" (Wilson v. Bailey (1937) 8 Cal.2d 416, 423, quoting Carpy v. Dowdell (1897) 115 Cal. 677, 687.)

• "'In such a case, although no consideration or benefit accrues to the person making the promise, he is the author or promoter of the very condition of affairs which stands in his way; and when this plainly appears, it is most equitable that the court should say that they shall so stand. [Citations.]'" (Wade v. Markwell & Co. (1953) 118 Cal.App.2d 410, 420.)