
    RODGERS v JPMORGAN CHASE BANK NA
    Docket No. 327403.
    Submitted April 13, 2016, at Grand Rapids.
    Decided April 26, 2016, at 9:15 a.m.
    Leave to appeal denied 500 Mich 883.
    Mack and Lillie Rodgers brought an action in the Berrien Circuit Court against JPMorgan Chase Bank NA, an unknown note-holder, and Ocwen Loan Servicing LLC, alleging that a loan-modification agreement was a binding contract and that defendants had breached that contract. While plaintiffs had signed one portion of the agreement, plaintiffs had failed to sign the final page, and Ocwen had never signed the agreement. In an amended complaint, plaintiffs sought a declaratory judgment that Ocwen had breached the loan-modification agreement and the implied covenant of good faith and fair dealing. Ocwen moved for summary disposition under MCR 2.116(0(10), alleging that the statute of frauds, MCL 566.132(2), barred plaintiffs’ claims because no authorized Ocwen representative had ever signed the agreement. Ocwen further alleged that even if the statute of frauds was not implicated, plaintiffs’ claims must fail because plaintiffs never fully executed the agreement by signing the last page and because Ocwen never signed the agreement. The court, Sterling R. Schrock, J., granted Ocwen’s motion for summary disposition and, pursuant to the parties’ agreement, dismissed JPMorgan Chase Bank from the action. Plaintiffs appealed.
    The Court of Appeals held:
    The statute of frauds, MCL 566.132(2), provides, in relevant part, that an action shall not be brought against a financial institution to enforce a financial institution’s promise or commitment to renew, extend, modify, or permit a delay in repayment or performance of a loan, extension of credit, or other financial accommodation unless the promise or commitment is in writing and signed with an authorized signature by the financial institution. Plaintiffs attempted to enforce a written loan-modification agreement by relying on the agreement itself as well as documents and correspondence between the parties that detailed the modification process; however, none of these documents contained Ocwen’s authorized signature. Without an authorized signature, the statute of frauds barred plaintiffs’ claims based on any theory, including plaintiffs’ theories of breach of contract, breach of the implied covenant of good faith and fair dealing, and estoppel. Even if the statute of frauds had not been implicated, summary-disposition was proper because the loan-modification agreement contained express conditions that had to be satisfied before the agreement would be enforceable, including the condition that plaintiffs receive a signed copy of the agreement from defendant, which never occurred. Therefore, because neither party fully executed the agreement and because the conditions precedent to the formation of the contract were not satisfied, there was no agreement to enforce. Because no contract was ever formed, the doctrine of substantial performance and the implied covenant of good faith and fair dealing were inapplicable.
    Affirmed.
    
      Lewis Reed & Allen, PC (by Ronald W. Ryan), for Mack Rodgers and Lillie Rodgers.
    
      Dykema Gossett PLLC (by Thomas M. Schehr, Jill M. Wheaton, and Mark J. Magyar) for Ocwen Loan Serving LLC.
    Before: SAAD, P.J., and BORRELLO and GADOLA, JJ.
   SAAD, R J.

Plaintiffs appeal the trial court order that granted defendant Ocwen Loan Servicing LLC’s motion for summary disposition. For the reasons provided below, we affirm.

I. BASIC FACTS

The following facts are not in dispute. On November 10, 2006, plaintiffs obtained a loan for real property and granted a mortgage as security. By 2011, plaintiffs had defaulted on their loan and filed for bankruptcy in the United States Bankruptcy Court for the Western District of Michigan. But rather than surrender the property in bankruptcy and discharge the debt, plaintiffs chose to reaffirm the debt.

Defendant received the servicing rights to the loan on April 2, 2012. Because of the risk of foreclosure, plaintiffs submitted an application to defendant for a modification of the loan. On May 11, 2012, defendant sent plaintiffs a letter that explained the process for modifying the terms of the loan. The letter set out the three steps that would have to occur for a loan modification to become effective:

Step 1 - The first step in the approval process is to have your financial package reviewed for completeness. We must make sure that all of the required.information has been submitted and the applicable forms are signed and dated appropriately. After you submit the financial package, there is no need to call us to check on it. If your package is incomplete, Ocwen will notify you through a letter indicating what documents are missing or incorrect. If your package is complete, it will automatically move to underwriting.
Step 2 - Once the package has been certified as complete, your application moves to the underwriting stage where your eligibility is determined. If you have applied for assistance on your primary residence and your loan is a first lien, Ocwen will first look to qualify you for the federal government’s Home Affordable Modification Program (HAMP). If we determine that you do not qualify for the HAMP modification, we will attempt to qualify you for an Ocwen sponsored modification program automatically. If you are applying for assistance on an investment property or second lien mortgage, you may still qualify for an Ocwen sponsored modification. If you do not qualify for either an HAMP or Ocwen modification, we will send you a letter with information on alternatives.
Step 3 - If you qualify, we will send you either a Trial Period Plan offer or a modification offer depending on the program. It takes approximately 30 days for us to complete our review.

The letter was not signed by any individual but instead closed with “Sincerely, Ocwen Loan Servicing, LLC.’’

On September 28, 2012, defendant wrote another letter to plaintiffs, which provided in pertinent part:

Congratulations! This is the first step toward qualifying for more affordable mortgage payments. Please read this letter so that you understand all the steps you need to take to modify your mortgage payments.
What you need to do...
To accept this offer, you must make your first monthly “trial period payment.” To qualify for a permanent modification, you must make the following trial period payments in a timely manner:
[Three trial payments of $768.95 each are due on November 1, 2012, December 1, 2012, and January 1, 2013.]
After all trial period payments are timely made and you have submitted all the required documents, your mortgage will be permanently modified. (Your existing loan and loan requirements remain in effect and unchanged during the trial period.)

As before, this letter was not signed by an individual but instead closed with “Sincerely, Ocwen Loan Servicing, LLC.”

In October 2012, defendant sent plaintiffs an eight-page “Home Affordable Modification Agreement.” There were two portions that required plaintiffs’ signature. The first portion described the new monthly payment schedule, and the other portion described how there was a balloon payment of $27,856.26 due on December 1, 2036, after the 287 monthly installments were complete. The agreement provided that after plaintiffs returned two signed copies, defendant would countersign and return a fully signed version. The agreement further provided that it was not to take effect unless the preconditions in section 2 of the agreement had been satisfied. One of those preconditions states:

I understand that the Loan Documents will not be modified unless and until (i) I receive from the Servicer a copy of this Agreement signed by the Servicer, and (ii) the Modification Effective Date (as defined in Section 3) has occurred. I further understand and agree that the Servicer will not be obligated or bound to make any modification of the Loan Documents if I fail to meet any one of the requirements under this Agreement.

It is undisputed that defendant never returned a signed copy to plaintiffs. That is because on October 31, 2012, defendant noticed that, while plaintiffs signed the first portion of the agreement, plaintiffs had failed to sign page 8 of the agreement, which pertained to the balloon-payment disclosure. Consequently, on March 4, 2013, defendant closed the modification plan and wrote a letter to plaintiffs notifying them that their application for a modification was denied because they “failed to return the final modification agreement within the required timeframe.” The denial letter was mailed on March 6.

On March 19, plaintiff Mack Rodgers called defendant to inquire about the denial. Defendant’s representative informed Mack that no fully authorized final agreement was received. Defendant thereafter sent another copy of the agreement to plaintiffs for them to fully execute. However, there is no evidence that plaintiffs ever executed that agreement and returned it to defendant.

Plaintiffs filed their original complaint on September 25, 2013. The complaint sought a declaration that the loan-modification agreement was a binding contract and that defendant breached it. Defendant moved for summary disposition under MCR 2.116(C)(8), and the trial court granted the motion because plaintiffs failed to attach the written instruments they relied upon to their complaint, contrary to MCR 2.113(F). But the court allowed plaintiffs to amend their complaint.

Relevant to the appeal before us is plaintiffs’ amended complaint, which was filed on August 29, 2014, and seeks a declaratory judgment that defendant breached the loan-modification agreement and that defendant breached the implied covenant of good faith and fair dealing. This time, plaintiffs attached the written documents they were relying upon—including the loan-modification agreement at issue—to the complaint.

Defendant again moved for summary disposition, this time under MCR 2.116(0(10). Defendant argued that the statute of frauds, MCL 566.132(2), barred plaintiffs’ claims because the loan-modification agreement that plaintiffs sought to enforce was never signed by any authorized representative. Furthermore, defendant argued that even if the statute of frauds was not implicated, plaintiffs’ claims must fail because (1) plaintiffs never fully executed the modification agreement by signing the last page pertaining to the balloon-payment disclosure and (2) defendant never signed the modification agreement either. The trial court agreed with all of defendant’s reasons and granted the motion for summary disposition.

II. STANDARD OF REVIEW

This Court reviews a trial court’s decision on a motion for summary disposition de novo. Johnson v Recca, 492 Mich 169, 173; 821 NW2d 520 (2012). Defendant moved for summary disposition under MCR 2.116(0(10), which tests the factual sufficiency of a complaint and is reviewed by considering the pleadings, admissions, and other evidence submitted by the parties in the light most favorable to the nonmoving party. Joseph v Auto Club Ins Ass’n, 491 Mich 200, 206; 815 NW2d 412 (2012). “Summary disposition pursuant to MCR 2.116(C)(10) is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” McCoig Materials, LLC v Galui Constr, Inc, 295 Mich App 684, 693; 818 NW2d 410 (2012).

Additionally, we review questions of contractual interpretation and statutory interpretation de novo. Ligons v Crittenton Hosp, 490 Mich 61, 70; 803 NW2d 271 (2011); Rory v Continental Ins Co, 473 Mich 457, 464; 703 NW2d 23 (2005). And whether the statute of frauds bars enforcement of a purported contract presents a question of law that this Court reviews de novo. Zander v Ogihara Corp, 213 Mich App 438, 441; 540 NW2d 702 (1995).

III. ANALYSIS

Plaintiffs argue on appeal that the loan-modification agreement should be enforced as a binding agreement between them and defendant. We disagree.

Plaintiffs assert that the statute of frauds is not a bar to the enforceability of the agreement. The relevant statute of frauds is found in MCL 566.132(2) and provides the following:

An action shall not be brought against a financial institution to enforce any of the following promises or commitments of the financial institution unless the promise or commitment is in writing and signed with an authorized signature by the financial institution:
(b) A promise or commitment to renew, extend, modify, or permit a delay in repayment or performance of a loan, extension of credit, or other financial accommodation. [Emphasis added.]

As this Court has explained in Crown Technology Park v D&N Bank, FSB, 242 Mich App 538, 550; 619 NW2d 66 (2000):

The statute of frauds specifically bars “an action.” By not specifying what sort of “action” MCL 566.132(2). . . prohibits, we read this as an unqualified and broad ban. We also note that the subsections of MCL 566.132(2).. . use generic and encompassing terms to describe the types of promises or commitments that the statute of frauds now protects absolutely. This is consistent with interpreting MCL 566.132(2)... to preclude all actions for the enumerated promises and commitments, including actions for promissory estoppel. Further, it would make absolutely no sense to conclude that the Legislature enacted a new section of the statute of frauds specifically addressing oral agreements by financial institutions but, nevertheless, the Legislature still intended to allow promissory estoppel to exist as a cause of action for those same oral agreements.

Although we are not confronted with a purported oral agreement in the instant case, Crown Technology Park's holding is nonetheless applicable. Here, plaintiffs attempt to enforce a written agreement by relying on many documents, including the letters defendant sent to plaintiffs that detail the modification process and the loan-modification agreement itself. However, none of these writings is “signed with an authorized signature.” Thus, without any authorized signature, the statute of frauds bars any claim, regardless of its label, by plaintiffs to enforce any purported agreement. This bar covers plaintiffs’ claims based on any theory, including their theories of breach of contract, breach of the implied covenant of good faith and fair dealing, and estoppel.

Moreover, the trial court correctly ruled that summary disposition was proper apart from the bar of the claims based on the statute of frauds. Clearly, the relevant agreement that plaintiffs seek declared enforceable is the loan-modification agreement. That agreement contained express conditions that had to be satisfied before the agreement would be enforceable. Section 2 of the agreement listed these conditions, one of which states:

I understand that the Loan Documents will not be modified unless and until (i) I receive from the Servicer a copy of this Agreement signed by the Servicer, and (ii) the Modification Effective Date (as defined in Section 3) has occurred. I further understand and agree that the Servicer will not be obligated or bound to make any modification of the Loan Documents if I fail to meet any one of the requirements under this Agreement.

Thus, one of the conditions precedent to the formation of the contract was that plaintiffs receive a signed copy of the agreement from defendant. It is undisputed that this never occurred. Indeed, that defendant did not return a signed copy is understandable because plaintiffs themselves never signed the balloon-payment disclosure, which was an integral part of the agreement. Hence, because neither party fully executed the agreement and because the conditions precedent to the formation of the contract were not satisfied, there is no agreement to enforce.

Further, plaintiffs’ reliance on the doctrine of substantial performance is misplaced. The doctrine of substantial performance is used to determine whether a party can be considered to have fulfilled its obligation under a contract even though that party has not fully performed. See Black’s Law Dictionary (10th ed) (defining the “substantial-performance doctrine” as “[t]he rule that if a good-faith attempt to perform does not precisely meet the terms of an agreement or statutory requirements, the performance will still be considered complete if the essential purpose is accomplished”). However, this doctrine is inapplicable to the fulfillment of express conditions. See Fisher v Burroughs Adding Machine Co, 166 Mich 396, 402-403; 132 NW 101 (1911); Brown-Marx Assoc, Ltd v Emigrant Savings Bank, 703 F2d 1361, 1367-1368 (CA 11, 1983); 17A Am Jur 2d, Contracts, § 616, p 573. As a result, because the express conditions precedent to the formation of the contract were not fulfilled, the contract never came into existence and is consequently not enforceable. Knox v Knox, 337 Mich 109, 118; 59 NW2d 108 (1953).

And similarly, because no contract was formed, plaintiffs’ reliance on the implied covenant of good faith and fair dealing is unavailing. “It has been said that the covenant of good faith and fair dealing is an implied promise contained in every contract ‘that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.’ ” Hammond v United of Oakland, Inc, 193 Mich App 146, 151-152; 483 NW2d 652 (1992), quoting Fortune v Nat’l Cash Register Co, 373 Mass 96, 104; 364 NE2d 1251 (1977). But plaintiffs’ claim based on this theory must fail because “Michigan does not recognize a cause of action for breach of the implied covenant of good faith and fair dealing.” Fodale v Waste Mgt of Mich, Inc, 271 Mich App 11, 35; 718 NW2d 827 (2006); see also Ulrich v Fed Land Bank of St Paul, 192 Mich App 194, 197; 480 NW2d 910 (1991), citing Kewin v Mass Mut Life Ins Co, 409 Mich 401, 422-423; 295 NW2d 50 (1980). Moreover, this covenant is applicable only if there is a valid, enforceable contract. But, as already discussed, no contract was ever formed. Therefore, it is clear that dismissal of this claim was warranted.

Affirmed. Defendant, as the prevailing party, may tax costs pursuant to MCR 7.219.

BORRELLO and GADOLA, JJ., concurred with SAAD, P.J. 
      
       The other named defendant, JPMorgan Chase Bank NA, was dismissed and is not part of this appeal. As a result, our use of the term “defendant” in this opinion will refer to Ocwen.
     
      
       We disagree with the nonbinding federal authority plaintiffs rely on that suggests that Crown Technology Park’s holding should be limited to circumstances involving oral promises. See Yates v US Bank Nat’l Ass’n, 912 F Supp 2d 478, 488 (ED Mich, 2012). We see no reason why MCL 566.132(2)’s requirement of an authorized signature is to be given less weight than its requirement of a writing.
     
      
       While defendant sent letters to plaintiffs leading up to the presentment of the loan-modification agreement, those letters contained no specific terms regarding any loan modification. Indeed, the May 11,2012 letter plainly uses conditional language, such as, “If you qualify.” And the September 28, 2012 letter references the actual loan-modification agreement that is to come and that will need to be executed by plaintiffs: “After all trial period payments are timely made and you have submitted all the required documents, your mortgage will be permanently modified.” (Emphasis added.)
     