Breach of Contract

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Civil

7^th Circuit Court of Appeals

Officials: EASTERBROOK, WILLIAMS, and SYKES, Circuit Judges

Breach of Contract

No. 14-1949 Daniel Avila v. CitiMortgage, Inc.

Dismissal of appellant breach of contract claim on grounds that he was barred from pursuing legal action due to a material default improper.

“Section 22 of the mortgage agreement describes CitiMortgage’s remedies in the event of a default by the homeowner. Specifically, the lender is entitled to accelerate a loan and initiate judicial foreclosure proceedings, but only after giving the homeowner notice of the alleged default and providing 30 days to cure it. (Acceleration in turn triggers the borrower’s right to reinstate the mortgage agreement if certain conditions are met.) Avila argues that because section 22 establishes a specific process for dealing with a default, the homeowner’s first default would not make the mortgage agreement thereafter wholly unenforceable. And while CitiMortgage could have accelerated Avila’s loan in response to his default, applying the insurance proceeds to pay down his loan balance was not a remedy for missed payments. That’s a reasonable reading of the mortgage contract. Section 5 appears to envision the survival of its terms after a default. As we’ve explained, that section gives CitiMortgage the right to apply insurance proceeds toward the outstanding loan balance under certain specified conditions, including the homeowner’s abandonment of the property or foreclosure by CitiMortgage. Abandonment is a default per se under certain circumstances (under section 6 of the agreement), and foreclosure necessarily follows a default. These provisions of section 5 would be superfluous if any default immediately gave CitiMortgage the right to apply an insurance payout toward the mortgage loan. See Cent. Ill. Light Co. v. Home Ins. Co., 821 N.E.2d 206, 213 (Ill. 2004) (“[A] contract[] is to be construed as a whole, giving effect to every provision, if possible, because it must be assumed that every provision was intended to serve a purpose.”).”

Affirmed as to breach of fiduciary duty claim

Reversed and remanded as to dismissal of breach of contract claim

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.