due-on clause in California

1978Civil Code section 711 sets forth the basic law on the subject and states simply that "[c]onditions restraining alienation, when repugnant to the interest created, are void." Our decision in Coast Bank v. Minderhout (1964) 61 Cal.2d 311 [ 38 Cal. Rptr. 505 , 392 P.2d 265 ], recognized that this rule was not absolute in its application, but forbade only unreasonable restraints against alienation. (4a) In determining whether a due-on clause was unreasonable in Coast Bank we looked at whether the restraint was necessary to prevent impairment to the lender's security.

1978Civil Code section 711 sets forth the basic law on the subject and states simply that "[c]onditions restraining alienation, when repugnant to the interest created, are void." Our decision in Coast Bank v. Minderhout (1964) 61 Cal.2d 311 [ 38 Cal. Rptr. 505 , 392 P.2d 265 ], recognized that this rule was not absolute in its application, but forbade only unreasonable restraints against alienation. (4a) In determining whether a due-on clause was unreasonable in Coast Bank we looked at whether the restraint was necessary to prevent impairment to the lender's security.

1982(See, e.g., La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 880, fn. 17 [ 97 Cal. Rptr. 849 , 489 P.2d 1113 ] [due-on-encumbrance provision]; Tucker v. Lassen Sav. & Loan Assn. (1974) 12 Cal.3d 629, 639, fn. 10 [ 116 Cal. Rptr. 633 , 526 P.2d 1169 ] [enforcement of due-on clause upon execution of an installment land contract].) It was not until Wellenkamp , *519 however, that the Supreme Court decided that enforcement of a due-on clause after transfer of property by outright sale wherein legal title is transferred was a restraint on alienation of sufficient quantum to require justif

1982(See, e.g., La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 880, fn. 17 [ 97 Cal. Rptr. 849 , 489 P.2d 1113 ] [due-on-encumbrance provision]; Tucker v. Lassen Sav. & Loan Assn. (1974) 12 Cal.3d 629, 639, fn. 10 [ 116 Cal. Rptr. 633 , 526 P.2d 1169 ] [enforcement of due-on clause upon execution of an installment land contract].) It was not until Wellenkamp , *519 however, that the Supreme Court decided that enforcement of a due-on clause after transfer of property by outright sale wherein legal title is transferred was a restraint on alienation of sufficient quantum to require justif

1983(Garfinkle v. Wells Fargo Bank (1982) 135 Cal.App.3d 514, 519-520, fn. 5 [ 185 Cal.Rptr. 401 ].) A fortiori, Dawn Investment Co. v. Superior Court, supra, 30 Cal.3d 695 , applies here, as it merely holds the Wellenkamp rule applies to private lenders and commercial property and thus should be afforded at minimum the same retroactive effect as Wellenkamp .

1981(See Holiday Acres No. 3 v. Midwest Federal Savings and Loan Association of Minneapolis (Minn. 1981) 308 N.W.2d 471, 481 .) Here, however, it is not the borrower who complains of the exercise of the due-on-sale clause, nor even one succeeding to ownership by virtue of a consensual transaction with the borrower.

1981As previously observed, if a junior encumbrancer is not permitted to foreclose and sell the property upon default in performance of the obligations secured by the junior encumbrance without accelerating the due date of the senior debt, few, if any, would choose to become a junior encumbrancer.” ( 87 Cal.App.3d at p. 529 .) The point is that in La Sala and in Pas there was a “free” or volitional alienation of an interest in real property that would be restrained by exercise of the due-on clause, namely, the junior security interest.

1978Proc., § 1060; Maguire v. Hibernia Sav. and Loan Soc. (1944) 23 Cal.2d 719 [ 146 P.2d 673 , 151 A.L.R. 1062 ].) If these requirements are met and no basis for declining declaratory relief appears, the court should declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to favorable declaration. ( Bennett v. Hibernia Bank (1956) 47 Cal.2d 540, 550 [ 305 P.2d 20 ]; Columbia Pictures v. DeToth (1945) 26 Cal.2d 753 [ 161 P.2d 217 , 162 A.L.R. 747 ].) The complaint herein alleges a controversy over the legal rights and duties of plaintiff and defe

1978Proc., § 1060; Maguire v. Hibernia Sav. and Loan Soc. (1944) 23 Cal.2d 719 [ 146 P.2d 673 , 151 A.L.R. 1062 ].) If these requirements are met and no basis for declining declaratory relief appears, the court should declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to favorable declaration. ( Bennett v. Hibernia Bank (1956) 47 Cal.2d 540, 550 [ 305 P.2d 20 ]; Columbia Pictures v. DeToth (1945) 26 Cal.2d 753 [ 161 P.2d 217 , 162 A.L.R. 747 ].) The complaint herein alleges a controversy over the legal rights and duties of plaintiff and defe

1978(See Texas Co. v. County of Los Angeles (1959) 52 Cal.2d 55 [ 338 P.2d 440 ].) However, given the importance of the stability of real estate titles and the interest in preserving completed real estate financing arrangements, we hold that this decision shall not apply when the lender, prior to the date that this decision becomes final, has either enforced the due-on clause, resulting in sale of the subject property by foreclosure or in discharge of the accelerated debt, or when the lender has waived enforcement of the due-on clause in return for an agreement with the new buyer modifying the exi

1978(See Texas Co. v. County of Los Angeles (1959) 52 Cal.2d 55 [ 338 P.2d 440 ].) However, given the importance of the stability of real estate titles and the interest in preserving completed real estate financing arrangements, we hold that this decision shall not apply when the lender, prior to the date that this decision becomes final, has either enforced the due-on clause, resulting in sale of the subject property by foreclosure or in discharge of the accelerated debt, or when the lender has waived enforcement of the due-on clause in return for an agreement with the new buyer modifying the exi

1978Proc., § 1060; Maguire v. Hibernia Sav. and Loan Soc. (1944) 23 Cal.2d 719 [ 146 P.2d 673 , 151 A.L.R. 1062 ].) If these requirements are met and no basis for declining declaratory relief appears, the court should declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to favorable declaration. ( Bennett v. Hibernia Bank (1956) 47 Cal.2d 540, 550 [ 305 P.2d 20 ]; Columbia Pictures v. DeToth (1945) 26 Cal.2d 753 [ 161 P.2d 217 , 162 A.L.R. 747 ].) The complaint herein alleges a controversy over the legal rights and duties of plaintiff and defe

1978Proc., § 1060; Maguire v. Hibernia Sav. and Loan Soc. (1944) 23 Cal.2d 719 [ 146 P.2d 673 , 151 A.L.R. 1062 ].) If these requirements are met and no basis for declining declaratory relief appears, the court should declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to favorable declaration. ( Bennett v. Hibernia Bank (1956) 47 Cal.2d 540, 550 [ 305 P.2d 20 ]; Columbia Pictures v. DeToth (1945) 26 Cal.2d 753 [ 161 P.2d 217 , 162 A.L.R. 747 ].) The complaint herein alleges a controversy over the legal rights and duties of plaintiff and defe

1978Otherwise one could justify any restraint on alienation upon the ground that the lender could exact a valuable consideration in return for its waiver, and that sensible lenders find such devices profitable." (5 Cal.3d at pp. 880-881, fn. 17.) (5) (See fn. 12.), (6) (See fn. 13.), (4c) For the foregoing reasons, we hold that a due-on clause contained in a promissory note or deed of trust [12] cannot be enforced upon the occurence of an outright sale unless the lender can demonstrate that enforcement is reasonably necessary to protect against impairment to its security or the risk of default. [1

1978(See Cherry v. Home Sav. & Loan Assn. (1969) 276 Cal. App.2d 574 [ 81 Cal. Rptr. 135 ]; Hellbaum v. Lytton Sav. & Loan Assn. (1969) 274 Cal. App.2d 456 [ 79 Cal. Rptr. 9 ].) [12] Defendant argues that even if the due-on clause contained in the deed of trust were held not to be automatically enforceable because it constitutes an unreasonable restraint on alienation, inclusion of the due-on clause in the promissory note, as required by Civil Code section 2924.5 for property containing four or fewer residential units, would make that clause part of the debt itself and therefore automatically enfo