## Facts

- Donna and Michael Gaffney bought a home subject to an existing first deed of trust held by Downey Savings and Loan Association; Downey accepted them as borrowers though no formal assumption agreement was executed.
- The loan required monthly payments (about $760).
- While pursuing a second loan through another lender, the Gaffneys failed to make the July 1 and August 1, 1983 payments to Downey.
- On August 8, 1983, Downey notified the Gaffneys of the arrearage and warned that failure to cure by September 8, 1983 would result in acceleration and foreclosure; they did not cure by that date.
- After the second-loan escrow closed in mid-September 1983, checks were sent to Downey that, collectively, would have covered the arrears and a current installment, but they were transmitted as separate instruments with no notation indicating they were components of a single tender.
- Downey processed each check as a stand-alone payment, treated each as insufficient to cure the total amount due at the time, returned the checks uncashed, and proceeded toward nonjudicial foreclosure (including filing a notice of default).
- The Gaffneys’ attorney opened a bank account containing funds equal to the rejected checks and described it as a “trust account” for Downey’s benefit, but the account did not give Downey immediate, unconditional access to the funds.
- Downey later offered to waive late fees and stop foreclosure if the Gaffneys resubmitted the full past-due amount; the offer was rejected.
- The Gaffneys sued seeking extinguishment of the note and deed of trust and later sought emotional-distress damages; after a bench trial, the trial court extinguished the debt and lien and awarded emotional-distress and punitive damages.
- Downey appealed.

## Issues

1. Whether the borrowers made a legally sufficient tender that would bar foreclosure or justify cancelling the note and deed of trust.
2. Whether the lender’s initiation of nonjudicial foreclosure after default could constitute breach of duty, bad faith, malice, or oppression supporting emotional-distress and punitive damages.
3. Whether extinguishment of the underlying debt and deed of trust was an available remedy on these facts.

## Decision

- The Court of Appeal reversed the judgment in full.
- The borrowers were in default, and the lender was entitled to invoke contractual remedies, including nonjudicial foreclosure.
- The purported tenders were not legally sufficient because they did not constitute an unconditional offer of full performance placing funds presently at the creditor’s disposal.
- Because the lender’s conduct amounted to enforcement of contractual rights rather than independent tortious conduct, the emotional-distress and punitive-damages awards could not stand.
- The order extinguishing the promissory note and deed of trust was improper and was reversed.

## Legal Principles

- A secured lender’s exercise of deed-of-trust remedies following an uncured default, without additional tortious conduct, does not by itself establish bad faith, malice, oppression, or a breach of duty supporting tort damages.
- A valid tender generally requires an unconditional offer of full performance that gives the creditor immediate, present ability to take the funds; partial, ambiguous, or creditor-inaccessible “tenders” do not bar foreclosure.
- Emotional-distress damages are not recoverable merely because lawful foreclosure activity (including ordinary preparatory steps) causes anxiety; an independent tort is required.
- Punitive damages require proof of oppression, fraud, or malice as defined by statute and cannot rest solely on a lender’s pursuit of lawful contractual remedies.

## Conclusion

Because the borrowers did not make an unconditional, complete tender and the lender acted within its contractual foreclosure rights after default, the Court of Appeal reversed the extinguishment of the debt and lien and vacated the emotional-distress and punitive-damages awards.


Gaffney v. Downey Sav. & Loan Ass’n, 200 Cal. App. 3d 1154 (Ct. App. 1988)