Bellingham First Federal Sav. and Loan Ass'n v. Garrison

Decision Date19 August 1976
Docket NumberNo. 43993,43993
Citation87 Wn.2d 437,553 P.2d 1090
CourtWashington Supreme Court
PartiesBELLINGHAM FIRST FEDERAL SAVINGS & loan association, a corporation, Respondent, v. George A. GARRISON and Edith C. Garrison, his wife, Appellants, John Rietman and Lois R. Rietman, his wife, Defendants.

Robert Lee Ager, Seattle, for appellants.

McCush, Kingsbury, O'Connor, Ludwigson, Thompson & Hayes, John S. Ludwigson, Bellingham, for respondent.

HAMILTON, Associate Justice.

Appellants, George and Edith Garrison, appeal a superior court decision declaring a due-on-sale provision in a real estate contract a lawful restraint on alienation.

In September 1971, appellant, George Garrison, built a modern 16-unit apartment complex in Bellingham, Washington. Appellants executed two promissory notes totaling $185,000 with Bellingham First Federal Savings and Loan Association, the respondent. Appellants secured these notes by executing with respondent two mortgages on appellants' apartments. The respective mortgage agreements contained the following due-on-sale clause:

The mortgagors further agree that they will not make any voluntary inter vivos transfer of the premises or any part thereof without first obtaining the written consent of the mortgagee. Any such transfer, if the mortgagee shall not so consent, shall constitute a default under the terms of this instrument . . .. If the mortgagee shall so consent, it shall consent also to substitution of mortgagor's transferee as obligor under this mortgage and the aforesaid note.

Appellants entered a real estate contract to sell the apartments to defendants, Mr. and Mrs. John Rietman, as of March 16, 1973. Respondent did not consent to the transfer and informed appellants they were in violation of their mortgage agreements. Appellants continued with the transaction. Relying solely on the above due-on-sale clause, respondent sued to foreclose the mortgages. The trial court enforced the due-on-sale clause and entered a judgment in respondent's favor. Appellants appeal from this judgment. We affirm.

As a preliminary matter, we consider the due-on-sale clause unambiguous and applicable to the transaction before us. The clause prohibits a voluntary inter vivos transfer of the property without respondent's consent. The real estate contract clearly transfers certain interests in the property from appellants to defendants. See, e.g., Lawson v. Helmich, 20 Wash.2d 167, 170--72, 146 P.2d 537 (1944); State ex rel. Oatey Orchard Co. v. Superior Court, 154 Wash. 10, 12--13, 280 P. 350 (1929); Kateiva v. Snyder, 143 Wash. 172, 175, 254 P. 857 (1927); Desmond v. Shotwell, 142 Wash. 187, 188--89, 252 P. 692 (1927). The California Supreme Court decision in Tucker v. Lassen Sav. & Loan Ass'n, 12 Cal.3d 629, 637, 116 Cal.Rptr. 633, 526 P.2d 1169, 1173 (1974), supports our interpretation. The court construed a similar due-on-sale clause and stated:

Although one holding property subject to a deed of trust who executes an installment land contract does not thereby 'sell, convey, or alienate' the Property within the meaning of those terms in the clause, it is clear that such a one thereby 'sell(s), convey(s), or alienate(s)' An interest in the property--to wit, his equitable interest in the property. . . . Accordingly, the 'due-on' clause is by its terms applicable to the transaction.

(Citations omitted.) Thus, the real estate contract executed by appellants and defendants is an 'inter vivos transfer' within the meaning of the clause.

Appellants principally challenge the validity of the due-on-sale clause. They claim it is an unreasonable restraint on alienation. Generally, unreasonable restraints on the alienation of real property are invalid. See, Richardson v. Danson, 44 Wash.2d 760, 766, 270 P.2d 802 (1954); Malouff v. Midland Fed. Sav. & Loan Ass'n, 181 Colo. 294, 299--300, 509 P.2d 1240 (1973). Reasonable restraints on alienation are valid if justified by the legitimate interest of the parties. See, Malouff v. Midland Fed. Sav. & Loan Ass'n, supra.

In Miller v. Pacific First Fed. Sav. & Loan Ass'n, 86 Wash.2d 401, 405, 545 P.2d 546, 549 (1976), we interpreted a due-on-sale provision and held

that a loan agreement provision that permits the lender to increase the interest rate upon transfer of the mortgaged property, even without a showing of increased risk to the lender, is not invalid per se as an unreasonable restraint on the free alienation of property.

Our Miller decision concerned only a portion of the due- on-sale clause which permitted the lender to increase the mortgage interest on the loan when the mortgaged property was transferred. Miller v. Pacific First Fed. Sav. & Loan Ass'n, supra at 403--04, 545 P.2d 546. The clause in this case does not give respondent the right to increase the interest rate upon transfer of the property. It is an acceleration clause. That is, upon transfer of the mortgaged property, the monthly payments are accelerated and the entire loan is due.

In the past few years, a number of jurisdictions have interpreted such due-on-sale clauses in real property mortgages. Some courts have automatically enforced due- on-sale clauses as reasonable restraints on alienation. See Malouff v. Midland Fed. Sav. & Loan Ass'n, supra, 181 Colo. at 300--03, 509 P.2d 1240; Baker v. Loves Park Sav. & Loan Ass'n, 61 Ill.2d 119, 333 N.E.2d 1, 4--5 (1975); Gunther v. White, 489 S.W.2d 529, 530 (Tenn.1973); Mutual Fed. Sav. & Loan Ass'n v. American Medical Servs., Inc., 66 Wis.2d 210, 215, 223 N.W.2d 921 (1974); Mutual Fed. Sav. & Loan Ass'n v. Wisconsin Wire Works, 58 Wis.2d 99, 110, 205 N.W.2d 762 (1973). Other courts consider the clauses unreasonable restraints on alienation and contrary to public policy, unless the transfer of property increases the risk of the lender-mortgagee. See Baltimore Life Ins. Co. v. Harn, 15 Ariz.App. 78, 81, 486 P.2d 190 (1971); Tucker v. Pulaski Fed. Sav. & Loan Ass'n, 252 Ark. 849, 854--55, 481 S.W.2d 725 (1972); Tucker v. Lassen Sav. & Loan Ass'n, supra at 638, 116 Cal.Rptr. at 638, 526 P.2d at 1174; Clark v. Lachenmeier, 237 So.2d 583, 584--85 (Fla.App.1970); Sanders v. Hicks, 317 So.2d 61, 63--64 (Miss.1975); United States v. Angel, 362 F.Supp. 445, 447 (E.D.Pa.1973). The court in Tucker v. Lassen Sav. & Loan Ass'n, supra, 12 Cal.3d at 639, 116 Cal.Rptr. at 639, 526 P.2d at 1175, explained when a transfer of the property increases the risk of the lender:

Rather, in such a case the clause can be validly enforced only when the beneficiary-obligee can demonstrate a threat to one of his legitimate interests sufficient to justify the restraint on alienation inherent in its enforcement. Such legitimate interests include not only that of preserving the security from waste or depreciation but also that of guarding against what has been termed the 'moral risks' of having to resort to the security upon default. . . . Thus, for example, if the beneficiary can show that the party in possession under the installment land contract is, or is likely to be, conducting himself with respect to the property in a manner which will probably result in a significant wasting or other impairment of the security, he may properly insist upon enforcement of the 'due-on' clause. Similarly, if the beneficiary can show that the prospects of default on the part of the vendor (requiring the inconvenience of resort to the security) are significantly enhanced in the particular situation, such circumstances might constitute a sufficient justification for enforcement of the clause despite its restraining effect. Other legitimate...

To continue reading

Request your trial
25 cases
  • Olean v. Treglia
    • United States
    • Connecticut Supreme Court
    • July 26, 1983
    ...State ex rel. Bingaman v. Valley Savings & Loan Assn., 97 N.M. 8, 12, 636 P.2d 279 (1981); Bellingham First Federal Savings & Loan Assn. v. Garrison, 87 Wash.2d 437, 441, 553 P.2d 1090 (1976). In the majority of jurisdictions, however, the burden of proof is the opposite. The due-on-sale cl......
  • Lake v. Equitable Sav. and Loan Ass'n
    • United States
    • Idaho Supreme Court
    • December 2, 1983
    ...490 P.2d 328 (1971); Lipps v. First American Service Corp., 223 Va. 131, 286 S.E.2d 215 (1982); Bellingham First Federal Savings & Loan Ass'n. v. Garrison, 87 Wash.2d 437, 553 P.2d 1090 (1976); Miller v. Pacific First Federal Savings & Loan Ass'n., 86 Wash.2d 401, 545 P.2d 546 (1976); Mutua......
  • Magney v. Lincoln Mut. Sav. Bank, 4929-III-9
    • United States
    • Washington Court of Appeals
    • February 17, 1983
    ...are invalid, reasonable restraints are valid if justified by legitimate interests of the parties. Bellingham First Fed. Sav. & Loan Ass'n v. Garrison, 87 Wash.2d 437, 439, 553 P.2d 1090 (1976); Miller v. Pacific First Fed. Sav. & Loan Ass'n, 86 Wash.2d 401, 403, 545 P.2d 546, 92 A.L.R.3d 81......
  • Williams v. First Federal Sav. and Loan Ass'n of Arlington
    • United States
    • U.S. Court of Appeals — Fourth Circuit
    • July 7, 1981
    ...employed, was created by the contracts of November 7, 1979 and November 8, 1979. See Bellingham First Federal Savings & Loan Association v. Garrison, 87 Wash.2d 437, 439, 553 P.2d 1090, 1091 (1976) ("Thus the real estate contract executed by appellants and defendants is an 'inter vivos tran......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT