Bruno v. First Federal Savings & Loan Ass'n

WALTERS, Judge, Pro Tem.

This case originated as a class action suit by Albert and Sharon Bruno against United First Federal Savings & Loan Association (First Federal). The Brunos claim they, and other members of the proposed class, suffered monetary damages by First Federal unlawfully charging assumption fees and higher interest rates as a condition of permitting assignment of mortgage loans. The district court denied the Brunos’ motion for class certification. The Brunos then pursued their individual case against First Federal. The district court subsequently granted summary judgment in favor of First Federal. On appeal the issues are: Did the district court err in granting summary judgment against the Brunos and in favor of First Federal? Did the district court err in denying class certification? Both sides seek attorney fees. We hold that the district court did not err in granting summary judgment. We consequently need not reach the class certification issue raised by the Brunos. We award no fees on appeal.

On the question of the summary judgment we find ourselves in agreement with the well-written opinion of the district court below. Because the material facts are undisputed, we adopt the district court’s recitation of the facts (with only minor additions). Those facts are as follows. In December of 1980, Albert and Sharon Bruno, as buyers, entered into an earnest money agreement with Lotwick and Kathryn *1105Reese, as sellers, to purchase certain residential real property in Ada County, Idaho. The parties agreed that the Brunos would assume the obligations of a deed of trust (hereinafter referred to as the Reese deed of trust) executed by the Reeses in 1977, wherein the defendant in this lawsuit, United First Federal Savings & Loan Association (known as First Federal Savings & Loan Association of Boise at the time of the 1977 transaction) was named as beneficiary. Under this 1977 deed of trust the Reeses were to repay the principal they borrowed from First Federal Savings and Loan Association of Boise at a nine percent interest rate.

After signing the earnest money agreement with the Reeses, the Brunos submitted an application to First Federal seeking approval for the Brunos to assume the obligations under the Reese deed of trust. In January, 1981, the Brunos became aware that First Federal would allow the Brunos to assume the Reese deed of trust but only on the condition that an assumption fee be paid and if the Brunos would agree to an increase of two percent in interest from the nine percent rate the Reeses had paid. By letter dated January 26, 1981, plaintiff Sharon Bruno advised her real estate agent that the Brunos were fully apprised of the increase in the interest rate to eleven percent and that the Brunos accepted this condition of the assumption.

On February 20, 1981, the Reese/Bruno sale was closed. Contemporaneously therewith, the Reeses, the Brunos and First Federal executed an assumption agreement whereby the Brunos expressly agreed to assume the indebtedness secured by the Reese deed of trust in favor of First Federal at the increased interest rate of eleven percent. The assumption agreement further provided that the Reeses would be released from all further liability on the loan assumed by the Brunos. Thereafter, the Brunos made payments to First Federal on the assumed loan at the eleven percent interest. The Brunos continued paying on the assumption agreement for some three years, and then in August, 1984, filed this lawsuit. The Bru-nos alleged that the mechanism First Federal used to obtain the Brunos’ consent to an increased interest rate, namely threatening to invoke a due-on-sale clause continued in the Reese deed of trust, was improper and that this particular due-on-sale provision has been ruled unenforceable by the Idaho Supreme Court.

In their action, the Brunos sought a return of all assumption fees and increased payments of interest paid by themselves and by all members of a purported class of borrowers who had entered into the same type of transaction with the defendant. On November 12, 1985, the district court entered an order denying class certification.

On motion by First Federal for summary judgment, the district court entered the following decision.1

“In resolving the issues posed, the Court initially notes that the Idaho Supreme Court has ruled that due-on-sale clauses in general are not restraints on alienation, unconscionable or against public policy. Lake v. Equitable Savings & Loan Association, 105 Idaho 923, 674 P.2d 419 (1983). In so holding, the Lake court expressly declined to follow the California rule established in Wellenkamp v. Bank of America, 21 Cal.3d 943 [148 Cal.Rptr. 379], 582 P.2d 970 (1978), that all such clauses were unenforceable unless the lender could show that enforcement of the clause was necessary to protect the lender against impairment of its security.

“Shortly after Lake was decided, the Idaho Supreme Court handed down O’Boskey v. First Federal Savings & Loan Assoc., 106 Idaho 339, 678 P.2d 1112 (1984). There, the court interpreted a due-on-sale clause identical to the contractual provision in the Reese deed of trust at issue here. Notwithstanding the decision in Lake, that such provisions are not void, invalid or against policy, the court in O’Boskey held *1106that the due-on-sale clause there, as a matter of contract, required a predicate showing that the security of the deed of trust would be impaired.

“The plaintiffs point to O’Boskey and argue that not only is the O’Boskey case res judicata of the questions presented in the instant lawsuit but also that United First had a duty to disclose to the Brunos the existence of the O’Boskey litigation. At this point it is necessary to discuss the O’Boskey case in some detail.

“The O’Boskey case was filed in the Fourth Judicial District in 1980. In that lawsuit, the O’Boskeys as prospective buyers of real estate contracted with First Federal (the same entity and defendant that contracted with the Brunos) for a purchase money real estate loan. The O’Boskey/First Federal loan agreement was secured by a deed of trust containing a due-on-sale clause.[2]

“Thereafter, the O’Boskeys agreed to sell the property secured by the deed of trust to Kay Kemp. While First Federal agreed to allow Kemp to assume the O’Boskeys’ loan obligations, it demanded a loan origination fee and a two percent increase in the interest rate. Notwithstanding First Federal’s demand, Kemp bought the property from the O’Boskeys, agreeing to make the loan payments but refusing to accede to First Federal’s assumption fee or interest rate increase. When First Federal attempted to exercise the due-on-sale clause and served notice of acceleration, both the O’Boskeys and Kemp joined as plaintiffs in a declaratory judgment action. In the O’Boskey/Kemp transaction, there was no assumption agreement executed between the parties and First Federal.

“On February 26, 1981, District Judge Gerald Schroeder entered an order in the O’Boskey case enjoining First Federal from continuing foreclosure proceedings under the deed of trust with respect to the O’Boskey/Kemp transaction. Thereafter, on September 1, 1981, Judge Schroeder granted the O’Boskeys and Kemp summary judgment to the extent that First Federal could not exercise the due-on-sale clause absent a showing that the security would be impaired by allowing Kemp to assume the loan obligations. Judge Schroeder’s decision was subsequently affirmed on appeal. O’Boskey v. First Federal Savings & Loan Association, 106 Idaho 339, 678 P.2d 1112 (1984).

“The question at bar is quite different from O’Boskey. There, the issue centered on the enforceability of the due-on-sale clause itself. Contrasted with the situation in O’Boskey, the issue in the instant lawsuit focuses on the validity of the assumption agreement. While it is true that the due-on-sale clauses in both O’Boskey and the present lawsuit are identical, that factual similarity is of no moment.

“The defendant concedes that the due-on-sale clause contained in the Reese deed of trust might have been unenforceable under the O’Boskey decision. However, the parties never reached that confrontation. Instead, a new agreement was signed by the Brunos, the Reeses, and First Federal which operated to release the Reeses and substitute the Brunos as borrowers, impose the stated assumption fee, and re-amortize the loan balance at an increased interest rate. This assumption agreement was a complete novation[3] of the prior contractual agreements between First Federal and *1107the Reeses, and became the controlling agreement between First Federal and the Brunos.

“The relevant inquiry under the facts presented is not whether the due-on-sale clause between First Federal and Reese can be resurrected and now be declared unenforceable, but rather the analysis must be confined to an examination of the new assumption agreement. This is not an O’Boskey case where the buyer expressly refused to agree to higher interest rate and the buyer and the seller joined in an action challenging the lender’s conduct. Nor is this case similar to Lake v. Equitable Savings & Loan Association, supra, where the buyer and seller agreed to the increased rate of interest under protest and then brought a declaratory judgment action attacking the due-on-sale clause. Both O’Boskey and Lake are inapposite and not controlling of the issues before the Court.

“In the instant case, while the plaintiffs were no doubt unhappy with First Federal’s demand for an increase in interest, they did not challenge the defendant’s actions as did the plaintiffs in O’Boskey and Lake. While the plaintiffs contend they were given no choice but to acquiesce in the defendant’s demands, the fact remains that they did have a choice — they could have refused to agree to First Federal’s terms — and proceeded without agreement as the parties did in O’Boskey, or agreed under protest as the parties did in Lake, or they could have abandoned the deal and looked elsewhere for more favorable terms. Instead of rejecting the defendant’s offer the plaintiffs willingly consummated their real estate transaction with the Reeses and entered into the assumption agreement, continuing to pay thereon for some three years. In exchange for the promises of the Brunos, First Federal released the Reeses from their obligations. A novation occurred wherein the Brunos “stepped into the shoes” of the Reeses and First Federal henceforth looked exclusively to the Bru-nos to satisfy the loan obligations.

“Under these set of facts the Court need not go beyond the face of the assumption agreement itself in determining the validity of the agreement. The record is clear that the Brunos knew that the defendant was demanding increased interest as a condition to allowing the Brunos to assume the Reese obligations. The Brunos knew or should have known that First Federal was making such a demand pursuant to the due-on-sale clause of the Reese deed of trust. While Sharon Bruno alleges that she requested First Federal officials, at the time of signing the assumption agreement, to provide her with a copy of the Reese deed of trust and note and that her request was denied on the basis that the lender did not keep these documents in that particular building, there is no showing that the Bru-nos were deceived in this respect by the defendant or that they would not have signed the assumption agreement had they seen the Reese deed of trust. The evidence points merely to the fact that Mrs. Bruno wished to have a copy of the Reese deed of trust for her records and that she was content in having First Federal forward a copy to her later. Indeed, Sharon Bruno admits that she did not ask either the Rees-es or her real estate agent to provide her with a copy of the Reese deed of trust and that she was aware of where she could go to view the papers as filed public documents affecting title to real estate. The facts, further show that the Brunos read the assumption agreement before they signed it. There is simply no basis on this record to show First Federal sought to hide any facts concerning the Brunos’ rights, obligations and duties under the assumption agreement. The Brunos do not attack the assumption agreement directly. It is only through a challenge to the due-on-sale clause that the Brunos allege the assumption .agreement must fall. Therefore, the Court holds that the assumption agreement was valid and enforceable. Plaintiffs’ contention that the due-on-sale clause in the Reese deed of trust might have been unenforceable if challenged does not present a legal basis for setting aside or attempting to refashion the assumption contract agreed to by all parties.”

We agree with the analysis and determination made by the district court.

*1108Simply put, the Reese-First Federal relationship was established and controlled by the loan agreement made between Reese and First Federal. Reese is not contending that First Federal has breached that agreement. The relationship between the Brunos and First Federal was established and controlled by the assumption agreement, which is essentially a new loan agreement entered into between the Brunos and First Federal. The Brunos, not being a party to the Reese-First Federal loan agreement, cannot assert the rights which the Reeses have refused to assert in this action. As the district court held, any claim which the Brunos have against First Federal must be based upon their own agreement with First Federal, the assumption agreement. The Brunos were not a party to the Reese-First Federal loan, and that obligation was no longer extant after Brunos obtained their own loan from First Federal and the Reeses’ loan obligation was discharged.

The terms offered by First Federal in the loan made to the Brunos were acceptable to the Brunos; otherwise the loan arrangement may not have closed (which would then have given rise to the possibility of an O’Boskey — type action). However, once the assumption agreement was consummated, the Reeses were out of the picture, their obligation with First Federal was discharged, and no rights thereunder remained for enforcement. The Brunos, who were not parties to the Reese-First Federal loan transaction, did not acquire any rights against First Federal except those resulting from the negotiation of their own loan assumption agreement with First Federal. Accordingly, we affirm the summary judgment entered by the district court in favor of the respondent.

The judgment is affirmed. Costs to respondent. No attorney fees awarded.

BAKES, J., and McFADDEN, J. pro tern., concur. WARD, J. pro tern., sat but died before issuance of the opinion.

. In quoting the district court’s decision, we have made minor typographical corrections throughout, and have omitted citations contained in the court’s decision referring to portions of the record.

[2.] At this point, the district court observed by footnote that:

The due-on-sale clauses in both the O’Bos-key and Reese deed of trust were identical. In pertinent part they read as follows:
"To protect the security of this Deed of Trust, Grantor agrees:
2. In the event the herein described property or any part thereof, or any interest therein is sold, agreed to be sold, conveyed or alienated by the trustor or by operation of law or otherwise, all obligations secured by this instrument, irrespective of the maturity dates expressed therein, at the option of the holder hereof and without demand or notice shall immediately become due and payable.”

[3.] A novation has been characterized as a species of accord and satisfaction, consisting of two stipulations: first, to extinguish an existing obligation and, second, to substitute a new one in place of the original. Harris v. Wildcat Corporation, 97 Idaho 884, 886, 556 P.2d 67, 69 (1976), following Wheeler v. Wardell, 173 Va. 168, 3 S.E.2d 377 (1939).