Auerbach v. Great Western Bank

74 Cal. App. 4th 1172 (1999)

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Auerbach v. Great Western Bank

California Court of Appeal
74 Cal. App. 4th 1172 (1999)

Facts

The Auerbachs (plaintiffs) purchased a commercial real estate property from Great Western Bank (GW) (defendant). To finance the purchase, the Auerbachs took out a nonrecourse loan from GW secured by a deed of trust on the property. The nonrecourse agreement specified that the nonrecourse nature of the loan would terminate upon transfer of all or any part of the Auerbachs’ interest in the secured property without GW’s consent. After the purchase, the Auerbachs transferred the property to their family trust without GW’s knowledge or consent. The property was economically successful for several years before it began to fail to produce adequate income. The Auerbachs and GW executed a preworkout agreement in which both parties promised to act in good faith to negotiate a possible modification of the loan. The Auerbachs and their representatives made several proposals for loan modifications, all of which GW rejected, sometimes with little deliberation. Moreover, GW refused to negotiate at all unless the Auerbachs stayed current on their payments. After over a year without progress on any modification agreement, the Auerbachs sued GW, claiming breach of the covenant to act in good faith, breach of contract with respect to the preworkout agreement, and promissory fraud. The jury was instructed to treat the Auerbachs as if they were nonrecourse borrowers. The jury found in favor of the Auerbachs, awarding them approximately $620,000 in compensatory damages and $2.6 million in punitive damages. GW appealed.

Rule of Law

Issue

Holding and Reasoning (Curry, J.)

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