Blessed are Those Who Read The Fine Print

Here’s an example: you seek a loan or refinance and get bombarded with paperwork (notices, directions, waivers, preconditions) designed to protect the lender. (It doesn’t have to be a lender, that’s just an example, as this could apply to any contract.) You, the party getting buried in documents, are giving up dozens of rights. Every term is defined, every waiver and notification is given.

Does all that paperwork really help the party drafting it?

Not always, according to a judge in Lackawanna County. There, a couple of Pennsylvania homeowners filed a breach of contract claim against Wells Fargo, which had offered a modified loan based on the Home Affordable Modification Program (HAMP), a federal initiative with incentives for lenders that assist homeowners in avoiding foreclosure. Wells Fargo bombarded the plaintiffs with paperwork when placing them in a trial period plan, which the Plaintiffs had hoped would involve a permanent loan modification if the plaintiffs would met their obligations.

Wells Fargo denied that the modification could have been permanent, based on the language contained in all that paperwork. Plaintiffs then brought suit. Wells Fargo filed objections to the suit, claiming that the documents speak for themselves. But the problem for Wells Fargo was the sheer amount of documentation. The judge devoted 10 pages of his 46-page opinion to the case’s extensive facts, which allegedly involved the Wells Fargo sending the plaintiffs identical documents months apart, confusing them, and requiring them to resubmit certain paperwork.

The Plaintiffs claimed that Wells Fargo committed a breach of contract by failing to offer them permanent changes to their mortgage payments after the homeowners met their obligations under a trial period with lower rates, and the court agreed that they could proceed with their case.

Also surviving was plaintiffs’ clam for Unfair Trade Practices and Consumer Protection Law, despite objections based on the statute of frauds.

Negligent Infliction of Emotional Distress

The plaintiffs also made a claim for negligent infliction of emotional distress. However, Pennsylvania follows the gist of the action doctrine, which provides that a claim sounding in contract should be litigated based on contracts principles (involving breach, damages, and putting the parties in the same position they would have been had the contract been carried out), not a tort, such as battery, or negligence, or other claims involving injury and mental anguish. Contracts, of course, can involve mental anguish, just as all lawsuits can, but in contract law cases, the courts place the parties in the position they would have been had the contract been carried out as intended.

For the above plaintiffs suing Wells Fargo, Lackawanna County Common Pleas Judge Terrence R. Nealon decided that he gist of the action doctrine prevented their tort claims for negligent infliction of emotional distress as well as any negligent misrepresentations related to Wells Fargo’s execution under the “trial period plan” at issue in that matter.

Parol Evidence Rule

The parol evidence rule prevents a party from offering evidence outside of the four corners of the contract to evaluate the parties’ intent, when the contract speaks for itself and has a merger clause or zipper clause that provides “this is the entire agreement between the parties,” for example. In other words, you are stuck with the language and remedies set forth in the contract and cannot claim you had “intended” to get other relief.

There, the plaintiffs lawyer claimed “‘Fraudulent Inducement'” because they were (allegedly) induced to sign a trial period plan and make payments for four additional months, allegedly leading the plaintiff to pull $6,500 from his retirement plan to avoid foreclosure.

The court, however, agreed with Wells Fargo that the parol evidence rule disposed of that claim. Parol evidence may be introduced when a party pleads that an agreement was modified due to fraud, but the fraud has to have taken place in the execution of the contract, not in the process by which an opposing party “induces” a complaining party to agree to a contract. This is why may contracts have language such as “there are no other oral or written promises or terms beyond this agreement.” The court sustained Well Fargo’s preliminary objections as to the fraud in the inducement count.

Get a free consultation.

(412) 780.0008