Carey v. Lincoln Loan Co.

Decision Date01 March 2000
Citation998 P.2d 724,165 Or. App. 657
PartiesDavid Lee CAREY and Tanja Marie Carey, husband and wife, Respondents, v. LINCOLN LOAN CO., an Oregon corporation, Appellant.
CourtOregon Court of Appeals

Steven E. Benson, Portland, argued the cause and filed the briefs for appellant.

John M. Berman, Tigard, argued the cause for respondents. With him on the brief was Damon J. Petticord.

Before De MUNIZ, Presiding Judge, and HASELTON and WOLLHEIM, Judges.

HASELTON, J.

Defendant Lincoln Loan Company appeals, assigning error to the trial court's allowance of plaintiffs' motion for summary judgment on their claims for declaratory relief and to the court's related award of attorney fees.1 The trial court concluded that the maximum prepayment restriction of the parties' land sale contract was unenforceable as violating ORS 82.170 and that, alternatively, the combination of that prepayment restriction and the contract's restrictions on assignment violated public policy as effecting an impermissible restraint on the alienability of real property. We conclude that the trial court erred in both of those alternative rationales and, accordingly, reverse and remand.

For purposes of this appeal, the following facts are uncontroverted: On June 14, 1990, the parties entered into a land sale contract by which plaintiffs agreed to purchase from defendant a home in North Portland. Defendant provided the contract, a preprinted Stevens-Ness form entitled "Contract-Real Estate." On that form, defendant had added the following pertinent provisions:

"This agreement is personal by and between the parties hereto and cannot be sold, assigned or hypothecated without written consent of first party [defendant].
"The purchase price of $16,793.06 to be paid in monthly installments of not less than $225/mo including interest at the rate of twelve per cent per annum on the unpaid principal balance, said payments to be made on or before the 30th of each and every month beginning with the month of June, 1990 and continuing until the sum of $16,793.06 together with interest thereon has been paid in full.

"In addition to be [sic] above monthly payments, second party [plaintiffs] shall pay taxes and insurance premiums, estimated at this time of [sic] amount to $44.00 per mo, said payment to be adjusted as taxes and insurance premiums increase or decrease.

"Second party shall not pay more than $2,000.00 on the unpaid principal balance during any one calendar year." (Emphasis added.)

The transaction involved only the land sale contract. Plaintiffs gave no promissory note or trust deed.

Thereafter, plaintiffs thrice borrowed funds from defendant to make improvements to the property and for other purposes. Each of those loans was secured by a note and mortgage against the property. Plaintiffs also obtained a loan from, and gave a mortgage to, the Portland Development Commission to make improvements to the property. As a result of each of those transactions, plaintiffs' total indebtedness secured by their interest in the property was approximately $60,000.

In December 1996, a third party made an offer to purchase the property from plaintiffs. Defendant agreed that plaintiffs could pay off the mortgages but, invoking the land sale contract's prepayment restriction, defendant refused to allow plaintiffs to pay off the principal balance under that contract. Defendant informed plaintiffs that, with defendant's consent, the land sale contract could be assumed by a new buyer, explaining that its consent was necessary to "verify that the new buyer had seen the home and had the financial ability to make the contract payments." The prospective buyers refused to assume the contract. Consequently, the sale failed.

In August 1997, plaintiffs filed this action, seeking, inter alia, a declaration of their rights under the land sale contract. The operative first amended complaint alleged, in part:

"3. Said residence [which was the subject of the land sale contract between the parties] was purchased for and intended by Plaintiffs and Defendant to be for Plaintiffs' personal, family, and household use.

"* * * * *

"5. Defendant's purchase money loan purports to restrict Plaintiffs from selling their home without Defendant's permission, or to pay off the unpaid balance without Defendant's permission.
"6. * * * Plaintiffs' loan agreement with Defendant Lincoln Loan Co. does not contain [the notice required by ORS 82.170], and Plaintiffs are entitled to pay the remaining balance at any time.

"* * * * *

"11. Plaintiffs contend that Defendant is not entitled to refuse payment in full pursuant to ORS 82.170. Plaintiffs further contend that without regard to ORS 82.170, the clause that purports to prevent them from selling their residence without Defendant's approval, especially in light of Defendant's refusal to grant such approval, and the clause that purports to prevent Plaintiffs from paying the loan in full, when taken together, constitute an unlawful restraint on alienation that is void as a matter of public policy. Plaintiffs also contend that said clauses, taken together, are unconscionable and therefore unenforceable."

Plaintiffs sought a declaration that they were entitled to prepay the entire amount owed to defendant and, upon payment, to sell their residence, with defendant being required to execute "any documents necessary to terminate" its interest. Plaintiffs further sought a declaration that defendant was not entitled to interest that accrued on the principal balance after November 1996, when plaintiffs presented a purchaser for the property and defendant refused to accede to the sale. Finally, plaintiffs sought attorney fees under the fee provision of the land sale contract.

After some preliminary procedural sparring, the parties filed cross-motions for summary judgment. Specifically, plaintiffs sought a summary determination that: (1) the prepayment restriction was "void for lack of notice under ORS 82.170," and, consequently, plaintiffs had "an absolute right to prepay"; (2) the prepayment restriction and assignment clauses were unenforceable as unlawful restraints on plaintiffs' right to alienate their property; (3) the contractual restrictions on prepayment and sale or assignment were "unconscionable and violate defendant's duty to act in good faith"; and (4) because plaintiff was entitled to pay the full balance due, defendant's failure to accept payment terminated the accrual of interest and damages on plaintiffs' obligation under the contract.2

Defendant's position was, essentially, the obverse: First, ORS 82.170 did not apply to the land sale contract and, consequently, that statute did not bar enforcement of the maximum prepayment restriction. Second, neither the prepayment restriction nor the assignment restriction of the land sale contract either individually or in combination effected an unlawful restraint on the alienability of the property.3

The trial court granted plaintiffs' motion for summary judgment and denied defendant's cross-motion:

"2. This real estate installment contract is a loan agreement within the meaning of ORS 82.150-.170. The legislature clearly intended to protect consumers from restrictions on prepayment for transactions such as the instant one. Seller financing is a form of loan.
"3. Since Defendant did not provide the statutorily mandated notice set forth in ORS 82.170, Plaintiffs are entitled to prepay their contract balance at any time.
"4. Also, Defendant's form of contract, which prohibits any alienation of Plaintiffs' interest without Defendant['s] approval, when coupled with the prohibition against prepaying the contract balance and eliminating the interest of [Defendant] in the real property, results in a substantial or total restraint on the alienation of the property which is prohibited by public policy. The public has a substantial interest in the free marketability of real property, especially single family residences, so as to maintain a competitive marketplace for the benefit of the economy overall, to permit owners of real property to be able to realize the fair value of their property by selling it in a competitive marketplace and to permit buyers to pay only fair value for such real property. Any historical distinction between legal title and equitable title is irrelevant to such underlying policies, and the law has long determined to look at substance over form.
"5. Plaintiffs would have paid off their entire debt to [Defendant] in December, 1996 but for [Defendant's] refusal to accept full payment through a sale of their home. Therefore, as of January 1, 1997 Plaintiffs do not owe any interest on their obligations to [Defendant] secured by their residence."4

The court consequently declared that plaintiffs were entitled to sell the property and that, upon full payment of the contract balance, they were entitled immediately to "receive a deed to the property deeding to them marketable title." The court subsequently entered its judgment setting the terms for the sale of the property and a supplemental judgment awarding plaintiffs fees pursuant to the contract.

On appeal, defendant raises four assignments of error. The first three pertain to the allowance of summary judgment and, specifically, to the trial court's determinations that the land sale contract is subject to ORS 82.170 and that the disputed contract provisions are unenforceable as unreasonable restraints against alienation. The fourth assignment challenges the award of contractual attorney fees.

In its first assignment of error, defendant asserts that the trial court erred in concluding that a land sale contract is a "loan agreement" governed by the notice provisions of ORS 82.170. ORS 82.170 provides:

"(1) If a loan agreement authorizes the lender to refuse to accept repayment of the loan prior to the date provided for repayment in the loan agreement, the...

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5 cases
  • Carey v. Lincoln Loan Co.
    • United States
    • Oregon Supreme Court
    • 28 Diciembre 2005
    ...decision and remanded for the trial court to decide plaintiffs' argument that the provisions are unconscionable. Carey v. Lincoln Loan Co., 165 Or.App. 657, 998 P.2d 724 (2000). On remand, the trial court ruled against plaintiffs, and they appeal. We The first issue that we must resolve is ......
  • Carey v. Lincoln Loan Co.
    • United States
    • Oregon Supreme Court
    • 12 Abril 2007
    ...The trial court granted plaintiffs' motion for summary judgment, but the Court of Appeals reversed. Carey v. Lincoln Loan Co., 165 Or.App. 657, 998 P.2d 724 (2000). The Court of Appeals held that defendant was entitled to judgment on some of the claims; however, it also concluded that plain......
  • State v. Stallcup, 000242E2; A117839 (OR 9/15/2004), 000242E2; A117839.
    • United States
    • Oregon Supreme Court
    • 15 Septiembre 2004
    ...722 (1997) (subsequently enacted provision cannot serve as context in construing a statute); Carey v. Lincoln Loan, 165 Or App 657, 667, 998 P2d 724 (2000) (applying 8. We endorse the trial court's observation: "It is unfortunate that the attorneys for the parties have let their arguments d......
  • Beers v. Jeson Enterprises
    • United States
    • Oregon Court of Appeals
    • 1 Marzo 2000
  • Request a trial to view additional results
3 books & journal articles
  • Chapter § 35.4 COMMON AREAS OF COMMERCIAL LEASE DISPUTES
    • United States
    • Oregon Real Estate Deskbook, Volume 3: Leasing, Condominiums, Planned Communities, and Timeshares Chapter 35 Commercial Lease Disputes and Remedies
    • Invalid date
    ...courts will imply a requirement that the lessor not unreasonably withhold consent. Carey v. Lincoln Loan Co., 165 Or App 657, 670-71, 998 P2d 724 (2000); Pac. First Bank v. New Morgan Park Corp., 319 Or 342, 876 P2d 761 (1994) (joining the jurisdictions that provide "if [a] lease states ten......
  • CHAPTER 2 THE PURCHASE AND SALE AGREEMENT -- THE SELLER'S VIEW1
    • United States
    • FNREL - Special Institute Oil and Gas Agreements - Sales and Financings (FNREL)
    • Invalid date
    ...(Idaho 1984). [24] See e.g., Pacific First Bank v. The New Morgan Corporation, 876 P.2d 761, 767 (Or. 1994), Carey v. Lincoln Loan Co., 998 P.2d 724 (Ct. Appeals Oregon 2000). [25] See e.g., Prince v. Elm Investment Co., Inc., 649 P.2d 820, 825 (Utah 1982) (in which the Supreme Court of Uta......
  • CHAPTER 4 NEGOTIATING THE PURCHASE AND SALE AGREEMENT: WORKING TOWARDS AN AGREEMENT: RESPONSIVE PRESENTATIONS AND DISCUSSION
    • United States
    • FNREL - Special Institute Oil and Gas Agreements - Sales and Financings (FNREL)
    • Invalid date
    ...(Idaho 1984). [24] See e.g., Pacific First Bank v. The New Morgan Corporation, 876 P.2d 761, 767 (Or. 1994), Carey v. Lincoln Loan Co., 998 P.2d 724 (Ct. Appeals Oregon 2000). [25] See e.g., Prince v. Elm Investment Co., Inc., 649 P.2d 820, 825 (Utah 1982) (in which the Supreme Court of Uta......

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