Majority
After our original opinion was filed on July 17,
1981,[1] the Supreme Court granted appellant’s petition for hearing, then retransferred the cause to our court for consideration in light of Dawn Investment Co., Inc. v. Superior Court (1982) 30 Cal.3d 695 [ 180 Cal.Rptr. 332 , 639 P.2d 974 ]. Upon due consideration, we conclude the same result is mandated.
The Callihans appeal a permanent injunction barring their nonjudicial foreclosure of a second deed of trust on real property purchased by Sam L. Wilhite, Jr. (Wilhite). The Callihans also complain of attorney fees granted to Wilhite. The appeal turns on the right of the Callihans —who claim “noninstitutional” lender status—to enforce a “due-on-sale”[2] clause.
Facts
Henry W. Callihan with the assistance of his wife Lucille G. Callihan manage an investment portfolio. A substantial portion of the portfolio consists of second trust deed loans. The Callihans have made at least 20 loans secured by trust deeds in the last 5 years. Many of the loans were made through San Diego Home Loan Corporation (SDHLC), trustee on the trust deed and collector of installments due on the loans.
On September 23, 1977, Callihan loaned Mr. and Mrs. Rogers $5,000 in return for a second deed of trust encumbering the Rogers’ residence. The loan was to be paid off in three years and the terms included a prepayment penalty and a “due-on-sale” clause.
On February 15, 1978, when the loan was in default, the Rogers sold and conveyed title in the residence, subject to the second deed of trust, to Wilhite. Wilhite cured the default and continued to make all the installment payments due under the loan. In September 1979, SDHLC notified the Callihans the Rogers had sold the encumbered property, and therefore the balance of the debt, $2,132.55, was due.
1 (Cal.App. (hg. granted Oct. 2, 1981).)
2 The “due-on-sale clause” in issue here provides in part: “[S]hould the [subject real property] ... be conveyed by trustor ... all sums secured shall ... become immediately due and payable.”
I
Discussion
Restraints on alienation created by “due-on-sale clauses” have been recently discussed in the United States Supreme Court case Fidelity Federal Savings and Loan Association v. de la Cuesta (June 28, 1982) 458 U.S. 141 [ 73 L.Ed.2d 664 , 102 S.Ct. 3014 ] and two California Supreme Court cases, Wellenkamp v. Bank of America (1978) 21 Cal.3d 943 [ 148 Cal.Rptr. 379 , 582 P.2d 970 ], and Dawn Investment Co., Inc. v. Superior Court, supra, 30 Cal.3d 695 . We examine the precise holdings in each case and review the development of the law involving due-on-sale clauses to determine which is applicable here.
In Fidelity Federal Savings and Loan Association v. de la Cuesta, supra, the United States Supreme Court considered a regulation enacted by the Federal Home Loan Bank Board (Board) providing a federal savings and loan association continues to have the power to include in its loan instrument a due-on-sale clause. The United States Supreme Court held: “[T]he Board intended to pre-empt conflicting state restrictions on due-on-sale practices like the California Supreme Court’s Wellenkamp doctrine.
“Our inquiry ends there. Accordingly, we hold that the Board’s due-on-sale regulation bars application of the Wellenkamp rule to federal savings and loan associations. [Fn. omitted.]” ( 458 U.S. 141 , 170 [ 73 L.Ed.2d 664 , 686].) The de la Cuesta holding does not assist reso
Before Dawn Investment, supra, was issued, the Supreme Court held in Wellenkamp v. Bank of America, supra, 21 Cal.3d 943 , in the case of a California institutional lender: “[A] due-on-clause contained in a promissory note or deed of trust cannot be enforced upon the occurence [jzc] 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.” (Id., at p. 953; fns. omitted.) But the Supreme Court limited the Wellenkamp holding: “In the instant case the party seeking enforcement of the due-on clause is an institutional lender. We limit our holding accordingly. We express no present opinion on the question whether a private lender, including the vendor who takes back secondary financing, has interests which might inherently justify automatic enforcement of a due-on clause in his favor upon resale.” (I d., at p. 952, fn. 9.)
Dawn Investment, supra, followed and extended the Wellenkamp rule to noninstitutional lenders, such as the Callihans.
The California law before Dawn Investment and Wellenkamp, began with Coast Bank v. Minderhout (1964) 61 Cal.2d 311 [ 38 Cal.Rptr. 505 , 392 P.2d 265 ] (overruled in part by Wellenkamp, supra, 21 Cal.3d at p. 953), where the Supreme Court held only unreasonable restraints were proscribed by Civil Code section 711.[3] The reasonableness of a due-on-sale clause was determined by analyzing its necessity in preventing impairment of the lender’s security. In that case, the Supreme Court found the due-on-sale clause reasonable and enforceable.
A due-on-sale clause providing for acceleration of a loan upon encumbrance of property was denied enforcement by the court in La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864 [ 97 Cal.Rptr. 849 , 489 P.2d 1113 ]. The suspect clause was found to involve significant restraints on alienation such as to preclude enforcement of the clause unless the lender could show enforcement was necessary to protect its security. (Id., at p. 881.)
3 Section 711 reads: “Conditions restraining alienation, when repugnant to the interest created, are void.”
Next, in Wellenkamp, supra, 21 Cal.3d 943 , the court held the automatic enforcement by an institutional lender of a due-on-sale clause upon outright sale of the encumbered property was an unreasonable restraint on alienation. At the outset, the court found the due-on-sale clause was indeed a restraint on alienation: “The buyer, faced with the lender’s demand for increased interest, may insist that the seller lower the purchase price. The seller would then be forced to choose between lowering the purchase price and absorbing the loss with the resulting reduction in his equity interest, or refusing to go through with the sale at all. In either event, the result in terms of a restraint on alienation is clear.” (Id., at pp. 950-951; fns. omitted.) The court then examined whether there was sufficient justification to overcome the quantum of restraint imposed by the due-on-sale clause. A legitimate interest of the lender must be threatened to justify the restraint: “[S]uch interests, which pertain to protection against impairment to the lender’s security, included preservation of the security from waste or depreciation and protection against the ‘moral risks’ of having to resort to the security upon default by an uncreditworthy buyer.” (Id., at p. 951.) The court found no. such overriding interests but specifically limited its holding to those cases involving institutional lenders. (Id., at p. 952, fn. 9.)
Finally, in Dawn Investment, supra, 30 Cal.3d 695 , the Supreme Court applied the Wellenkamp rule to noninstitutional lenders. No substantial reason had been shown to justify treating private lenders differently than institutional lenders. (Id., at p. 702.) The court rejected the lender’s several theories attempting to distinguish private lenders from commercial lenders, including ability to determine whether a sale would endanger security, risk allocation and loss spreading, long or short term financing, and institutional economic projections. The court reiterated and expanded Wellenkamp’s holding á lender may not enforce a due-on-sale clause upon resale in the absence of a showing of reasonable necessity to protect against impairment of the lender’s security or risk to it of default. (Dawn Investment, supra, at pp. 700-702.)
II
The trial court made a series of express findings, supported by uncontradicted and substantial evidence, the Callihans did not show any threat to or diminution of their security. In fact, the record shows their interest was more secure after the sale. Thus the Callihans show no basis in law, in equity or in fact to enforce what is on its face an impermissible restraint on alienation. The injunction was proper.
The Callihans next assert the trial court erred when it awarded Wilhite $2,623.75 attorney fees pursuant to Civil Code section 1717. The trust deed provides: “.. .Trustor Agrees:
“(3) ... to pay all costs and expenses, including cost of evidence of title and attorney’s fees in a reasonable sum, in any such action or proceeding in which the Beneficiary or Trustee may appear.”
Section 1717 was enacted to establish mutuality of remedy where there is a contractual provision for unilateral recovery of attorney fees. “In any action on a contract, where such contract specifically provides that attorney’s fees and costs, which are incurred to enforce the provisions of such contract, shall be awarded to one of the parties, the prevailing party, whether he is specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to costs and necessary disbursements ....” (Civ. Code, § 1717.) The Callihans rely upon Pas v. Hill (1978) 87 Cal.App.3d 521 [ 151 Cal.Rptr. 98 ], for the contention that section 1717 is inapplicable when the prevailing party was not personally liable under the contract by virtue of his status as a nonassuming grantee. Pas v. Hill was expressly overruled (by the authoring court) in Saucedo v. Mercury Sav. & Loan Assn. (1980) 111 Cal.App.3d 309 [ 168 Cal.Rptr. 552 ]. The Saucedo court pointed out that although a nonassuming grantee is under no obligation to pay attorney fees should the foreclosing party prevail, in order to protect his equity, the nonassuming grantee must pay attorney fees “actually incurred not exceeding .. . [$50] in case of a deed of trust . . . [to] cure the default .... ” (Civ. Code, § 2924c, subd. (a).) “This practical liability of the nonassuming grantee is sufficient to call into play the remedial reciprocity established by Civil Code section 1717.” (id., at p. 315.)
Judgment affirmed and cause remanded to the superior court to determine Wilhite’s attorney fees for his successful appeal.
Brown (Gerald), P. J., and Wiener, J., concurred.
Cases cited
- Dawn Investment Co. v. Superior Court 30 Cal.3d 695 p. 297, p. 298, p. 300
- Fidelity Federal Savings & Loan Ass'n v. De La Cuesta 458 U.S. 141 at 170, at 686 p. 298
- Wellenkamp v. Bank of America 21 Cal.3d 943 p. 298, p. 299, p. 300
- Coast Bank v. Minderhout 61 Cal.2d 311 p. 299
- La Sala v. American Savings & Loan Ass'n 5 Cal.3d 864 p. 299
- Tucker v. Lassen Savings & Loan Ass'n 12 Cal.3d 629 p. 300
- Pas v. Hill 87 Cal.App.3d 521 p. 301
- Saucedo v. Mercury Savings & Loan Ass'n 111 Cal.App.3d 309 p. 301