UCC Reporter-Digest: Mortgagor's Tender of Delinquent Payments Failed to Constitute Effective Cure: Rossi v. Suntrust Mortgage., Inc.

CASE OVERVIEW

Revised Section 3-111 of the Uniform Commercial Code states that an instrument is payable at the place of payment listed in the instrument. According to Revised Section 4-107, bank branches are separate banks for purposes of determining a place of payment. In Rossi v. Suntrust Morg., Inc., 2011 U.S. Dist. LEXIS 149376 (M.D. Tenn. Dec. 29, 2011) [an enhanced version of this opinion is available to lexis.com subscribers], a mortgage note required the mortgagor to make payments to a P.O. box in Maryland. It also allowed the mortgagor to cure any delinquency up to five days before a foreclosure sale. The mortgagor defaulted. The mortgagee scheduled a foreclosure sale. The mortgagor then tendered his delinquent payments more than five days before the sale. However, he tendered them at the mortgagee's Tennessee branch. Unfortunately for the mortgagor, the mortgagee refused to accept the tender and proceeded with foreclosure. The tender did not comply with the note's terms. Therefore, the mortgagee did not wrongfully refuse to accept the tender. Admittedly, the mortgagor had tendered, and the mortgagee had accepted, all previous payments at the Tennessee branch. However, the mortgagor's complaint did not allege that the mortgagee's conduct impliedly designated the Tennessee branch as an additional place of payment. 

CASE ANNOTATION (Uniform Commercial Code Reporter-Digest)

A mortgagor's tender of delinquent payments did not constitute an effective cure when: 1) the mortgage note required the mortgagor to make monthly payments to a post office box in Baltimore, Maryland; 2) the note allowed the mortgagor to cure any delinquency up to five days before a foreclosure sale; 3) the mortgagor defaulted on the note; 4) the mortgagee scheduled a foreclosure sale for July 21, 2011; 5) on July 14, 2011, the mortgagor tendered the delinquent payments at one of the mortgagee's branch offices in Tennessee; and 6) the mortgagee refused to accept the tender and proceeded with the foreclosure sale. According to Revised Section 3-111, an instrument is payable at the place of payment stated in the instrument. According to Revised Section 4-107, bank branches are separate banks for purposes of determining a place of payment. The note stated it was payable at the Baltimore post office box. The mortgagor tendered the delinquent balance at a Tennessee branch of the mortgagee. The mortgagor's tender did not comply with the terms of the note. Therefore, the mortgagee did not wrongfully refuse to accept his tender. The mortgagor's failure to cure his default meant the mortgagee was entitled to foreclose on his home.

Revised Section 3-111 did not establish otherwise. It gives persons entitled to enforce an instrument the right to determine the place of payment when the maker has multiple places of business. The mortgagee was the person entitled to enforce the note. It did not validate any other place of payment than the Baltimore post office box. Admittedly, the mortgagee accepted all of the mortgagor's regular payments at its Tennessee branch. However, the mortgagor's complaint did not allege that the mortgagee's conduct impliedly designated the Tennessee branch as an additional place of payment.

So, too, the mortgagee was not estopped from asserting that payment was required at the Baltimore post office box. The mortgagor never pled estoppel. Moreover, the deed of trust stated that the mortgagee's failure to exercise any right was not a waiver of that right. Thus, the mortgagee's previous failure to enforce the place of payment requirement did not preclude it from enforcing it in the future.

Official Comment 1 to Revised Section 4-107 also did not support a different result. It notes that Revised Section 4-107 states a limited rule. A single, uniform rule governing bank branches would not operate fairly in all circumstances. Revised Section 4-107's limited rule applied here. The issue was determining the place of payment. Revised Section 4-107 establishes that a bank branch is a separate bank for the purpose of "determining the place at . . . which action may be taken." Therefore, the Tennessee bank branch constituted a separate bank. Accordingly, the mortgagor's complaint did not state a claim for wrongful refusal of a tendered payment. The mortgagee was entitled to dismiss it.

Contracting parties owe each other a duty of good faith and fair dealing in their performance of a contract. This covenant honors the parties' reasonable expectations. It protects their right to receive the benefits of their agreement. However, the covenant of good faith and fair dealing does not create any new contractual rights or obligations. It is also not available to circumvent or alter the parties' agreement. It is part of an overall breach of contract claim. It does not stand alone. Here, the mortgagee did not breach the covenant of good faith and fair dealing or the contract when it refused to accept the mortgagor's tender at its Tennessee branch. The mortgagor was contractually obligated to make payments to a certain place. He failed to perform that obligation. The mortgagee was not obligated to accept the mortgagor's tender of payment at a different place. It did not matter that the mortgagee's acceptance of the mortgagor's tender would have prevented foreclosure. Requiring the mortgagee to accept payment at a different place would alter the parties' contract. It would add an additional term. Admittedly, the mortgagee's acceptance of all prior payments at its Tennessee branch might have given the mortgagor a legitimate, reasonable expectation that tendering his cure at that branch was acceptable. However, the mortgagor's complaint did not allege the mortgagee's prior acceptance of payments at its Tennessee branch. It also did not allege any reasonable expectations based on the mortgagee's prior conduct. Therefore, the mortgagor did not state a viable claim for breach of contract or violation of the covenant of good faith and fair dealing. Accordingly, the mortgagee was entitled to dismiss that claim as well.

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