Court Opinion

ID: 8408145
Source: CourtListenerOpinion
Date Created: 2022-11-02 16:39:57.893912+00
Date Added: 2024-06-11T16:47:32.686379
License: Public Domain

McKEOWN, Circuit Judge,
Dissenting:
The Grimeses may indeed have been duped by an unethical loan officer. Whether they have a claim under the Truth in Lending Act (“TILA”) is another matter. TILA focuses on disclosure and does not serve as an umbrella statute for consumer protection in real estate transactions. Rather, TILA is designed to foster the informed use of credit by “assurfing] a meaningful disclosure of credit terms.” 15 U.S.C. § 1601(a). Toward that end, in a credit transaction in which the creditor retains a security interest in the consumer’s principal dwelling, the consumer has the right to rescind the transaction “until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms ... together with a statement containing the material disclosures required.” Id. § 1685(a). The “material disclosures,” which must be made before credit is extended, include the amount financed, the finance charge, the annual percentage rate, total payments, the repayment schedule, and certain other disclosures and limitations not relevant here. 12 C.F.R. § 226.23(a)(3) n. 48; 15 U.S.C. § 1638(b).
The Grimeses do not claim that New Century failed to make any of the TILA-mandated disclosures, nor could they; New Century complied with the disclosure requirements to the letter. Instead, they argue that the loan consummation required by Regulation Z had not occurred by the time the funds were disbursed, and that the mortgage company therefore violated TILA. The Grimeses’ alleged difficulties with the loan officer naturally evoke sympathy for their plight. But their belated effort to cancel the transaction cannot be sustained under well-established federal and California law.
Under Regulation Z, which specifies a lender’s disclosure obligations, “consummation” of the loan occurs when the borrower is “contractually obligated.” 12 C.F.R. § 226.2(a)(13). The point at which a “contractual obligation ... is created” is a matter of state law. 12 C.F.R. pt. 226, Supp. 1 (Official Staff Interpretation), cmt. 2(a)(13). Under California law, a contract is formed when there are (1) parties capable of contracting, (2) mutual consent, (3) a lawful object, and (4) sufficient cause or consideration. Cal. Civ.Code § 1550. The parties agree that the third factor is not at issue. As to the other elements, they disagree as to the legal effect of the undisputed facts.
I first address the majority’s assertion that Mathews may not have had authority to contract for New Century and that New Century was therefore not contractually obligated. It is revealing that this argument was not raised by the Grimeses, who have able and articulate counsel. Indeed, in their briefs, they state several times that the parties agree that there are no material issues of fact in dispute. The Grimeses characterize Mathews as a loan officer for New Century, and draw no distinction between Mathews’ representations and representations by New Century. Mathews was the only New Century agent with whom the Grimeses dealt, and he arrived at their house to complete the loan bearing multiple documents representing New Century as the lender. In view of this scenario, it is no surprise that New Century does not disavow either Mathews’ authority or the legitimacy of the documents. There is no material dispute of fact that Mathews represented New Century and that the company was capable of contracting through its agent.
*1012The Grimeses do assert that because the actual cash disbursement was different from the amount they anticipated receiving, the contract lacked mutual consent, the second element of contract formation under California law.1 The cash disbursement, however, was an arithmetic function of the loan terms, which are not in dispute, and the amount of the Grimeses’ underlying credit card and mortgage debt, amounts within their control, not within New Century’s discretion. As in most mortgage transactions, the payoff amounts were estimated in the disclosure statement. The Official Staff Commentary to Regulation Z states that “[disclosures may be estimated when the exact information is unknown at the time disclosures are made,” 12 C.F.R. pt. 226, Supp. 1, cmt. 5(c)(2), and redisclosure is not required even in the event that more accurate information becomes available before the loan is funded, id. at 5(c)(3).
Significantly, the amount of cash disbursement is not a “material term” of the loan agreement under TILA. See 12 C.F.R. § 226.23(a)(3) n. 48. TILA’s approach to materiality makes sense — the key disclosures, such as the amount financed and interest rate, drive the economics of the transaction. The cash payout is simply a consequence of the key terms of the loan, not itself a key term of the loan under TILA or state law. Here, the Grimeses agreed to all material terms of the contract. Whether the alleged misrepresentations about the cash payout are the basis for a state law claim under the California Business and Professions Code § 17200 et seq. is not a question before us. The district court did not foreclose this avenue of relief, as the state claims were dismissed without prejudice to refiling in state court.
Finally, the Grimeses argue that because New Century had discretion not to fund the contract “unless and until it is fully satisfied that all terms of its conditional approval have been met in a satisfactory manner,” New Century was not obligated to the contract.2 California law, however, sets a fairly low bar for finding consideration, and so-called “satisfaction clauses” therefore do not prevent contract formation. See, e.g., Storek & Storek, Inc. v. Citicorp Real Estate, Inc., 122 Cal.Rptr.2d 267, 281, 100 Cal.App.4th 44, 61 (2002) (“When a condition precedent to a promisor’s performance calls for satisfaction as to commercial value, the contract is not illusory because the promisor’s ability to claim dissatisfaction is limited by the standard of reasonableness.”); Converse v. Fong, 205 Cal.Rptr. 242, 245, 159 Cal.App.3d 86, 90 (1984) (holding that a contract conditioned on the buyer’s approval of termite and roof reports was enforceable).
Even where the lender may refuse to fund the loan “for any reason as determined by the Lender in its sole but reasonable discretion,” as stated in the Borrower Notice signed by the Grimeses, California law supports the formation of an enforceable contract; “[t]he covenant of good faith is implied in order to set a limit on the promisor’s ability to express *1013dissatisfaction and thereby supply adequate consideration to support the contract.” Storek, 122 Cal.Rptr.2d at 281, 100 Cal.App.4th at 61; see also Mattel v. Hopper, 330 P.2d 625, 627, 51 Cal.2d 119, 124 (1958) (holding that “the promisor’s duty to exercise his judgment in good faith is an adequate consideration to support the contract”). Because the lender cannot “refuse to perform at [its] unrestricted pleasure,” Converse, 205 Cal.Rptr. at 245, 159 Cal.App.3d at 90, its promise is not illusory. New Century’s discretion to refuse to fund the loan was restricted by its obligation to act “reasonably]” in doing so, and it was thus bound by a duty of good faith. Consideration therefore existed on both sides, and each element of contract formation was satisfied.
Although it may be uncomfortable to dismiss the TILA claim in light of allegations of misdeeds by the loan officer, federal law compels this result. Indeed, the Staff Commentary to Regulation Z recognizes that “[t]he fact that a term or contract may later be deemed unenforceable by a court on the basis of equity or other grounds does not, by itself, mean that disclosures based on that term or contract did not reflect the legal obligation.” 12 C.F.R. pt. 226, Supp. 1, cmt. 5(c)(1). New Century complied with the disclosure mandate of TILA and should not be penalized under federal law for alleged shenanigans of its loan officer that are appropriately left to state law.

. The majority rests its argument in large part on the fact that the interest rate listed on the contract was different from that originally promised by Mathews. Because the Grimeses do not contend that no meeting of the minds existed with respect to the interest rate, but instead point to the difference between the expected and realized cash disbursement, the interest rate issue was waived. See Rude-busch v. Hughes, 313 F.3d 506, 521 (9th Cir.2002).

. Although the Grimeses rest this argument on the first element of contract formation, the parties’ capability to contract, it is more appropriately analyzed under the rubric of consideration.