PHH Mtge. Corp. v. Ramsey
2014 Ohio 3519 (2014)
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Rule of Law:
A lender waives strict enforcement of a contract's payment terms, such as method and due date, when its long-standing course of conduct involves accepting an alternative payment method without objection for years. The implied covenant of good faith and fair dealing prevents a lender from taking opportunistic advantage of a failure in its own payment system to declare a borrower in default.
Facts:
- In 2003, Andrew Ramsey executed a promissory note and mortgage with Coldwell Banker for a rental property, which was later acquired by PHH Mortgage Corporation.
- For six years, Ramsey consistently made his monthly mortgage payments electronically through a 'pay now' link on the lender's website, a system called 'Speedpay'.
- In August 2009, Ramsey's multiple attempts to pay via the Speedpay system failed due to an error message on the website.
- Ramsey called the lender's help line and was told the website was having problems, that his payment would be 'pushed' through, and he was given a confirmation number.
- Despite these assurances, PHH sent Ramsey a notice that his payment was late and, on September 8, 2009, issued a notice of intent to foreclose.
- Ramsey made further attempts to pay by visiting a physical office and mailing checks for several months' payments, but these payments were never processed or returned to him.
- During this period, PHH's representatives repeatedly entered the rental property to 'winterize' it and change the locks, disrupting Ramsey's tenant.
Procedural Posture:
- PHH filed a complaint in foreclosure against Ramsey in the Franklin County Court of Common Pleas (trial court).
- The trial court granted summary judgment in favor of PHH.
- Ramsey, as appellant, appealed to the Ohio Tenth District Court of Appeals, which reversed the summary judgment in a prior case ('Ramsey I'), finding genuine issues of material fact existed.
- The case was remanded to the trial court and was heard in a bench trial before a magistrate.
- The magistrate issued a decision denying foreclosure and awarding judgment to Ramsey.
- PHH filed objections to the magistrate's decision.
- The trial court overruled PHH's objections and entered a final judgment in favor of Ramsey.
- PHH, as appellant, appealed that final judgment to the Ohio Tenth District Court of Appeals.
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Issue:
Does a lender waive its right to enforce the strict payment method and due date terms of a promissory note when, for six years, it accepted electronic payments through its website and regularly accepted payments made after the first of the month?
Opinions:
Majority - Brown, J.
Yes. A lender waives its right to enforce strict contractual payment terms through a contrary course of performance. By accepting electronic payments from Ramsey for six years without objection, PHH waived the term requiring payment by 'cash, check or money order.' Furthermore, by providing a link to the Speedpay system on its own website, PHH created a justified expectation in Ramsey that this was an acceptable payment method and that the system would work. PHH's subsequent failure to cooperate with Ramsey when its own system failed, and its attempt to foreclose based on this failure, violated the implied covenant of good faith and fair dealing. The court also found that the anti-waiver provisions in the note and mortgage were inoperative because they required an actual default, which never occurred, or the acceptance of partial payment, which was not the situation here.
Analysis:
This decision underscores the significance of the 'course of performance' and the implied covenant of good faith and fair dealing in contract law, demonstrating that a party's long-standing conduct can override express contractual terms. The ruling serves as a protection for borrowers against lenders who might opportunistically use technical glitches in their own systems to declare a default and initiate foreclosure. It establishes that a history of accepting non-conforming performance, like electronic or late payments, can prevent a party from suddenly demanding strict compliance without reasonable notice. This case reinforces that waiver can be implied through inconsistent conduct, which is a factual determination based on the parties' history.
