Bruno v. First Federal Sav. & Loan Ass'n of Boise

• Decision Date: 19 January 1989
• Docket Number: No. 16714,16714
• Citation: 115 Idaho 1104,772 P.2d 1198
• Court: Idaho Supreme Court
• Parties: Albert J. and Sharon L. BRUNO, husband and wife, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BOISE, now known as United First Federal Savings & Loan Association, a federally chartered savings and loan association, Defendant-Respondent.

Page 1198

772 P.2d 1198

115 Idaho 1104

Albert J. and Sharon L. BRUNO, husband and wife, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BOISE, now known as United First Federal Savings & Loan Association, a federally chartered savings and loan association, Defendant-Respondent.

No. 16714.

Supreme Court of Idaho.

Jan. 19, 1989.

Rehearing Denied May 16, 1989.

Jon Steele, Ellis, Brown, Sheils & Steele, Chartered, Boise, for plaintiffs-appellants.

John Kurtz, Jr., Hawley, Troxell, Ennis & Hawley, Boise, for defendant-respondent.

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 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.

[115 Idaho 1105] Reese, 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.

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 Brunos 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 , 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 "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.

[115 Idaho 1106] that 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 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 "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 ...