Crestview, Ltd. v. Foremost Ins. Co.

• Decision Date: 29 July 1981
• Docket Number: No. 13461,13461
• Citation: Crestview, Ltd. v. Foremost Ins. Co., 621 S.W.2d 816 (Tex. Ct. App. 1981)
• Parties: CRESTVIEW, LTD., Appellant, v. FOREMOST INSURANCE COMPANY, Appellee.
• Court: Texas Civil Court of Appeals

Page 816

621 S.W.2d 816

CRESTVIEW, LTD., Appellant, v.FOREMOST INSURANCE COMPANY, Appellee.

No. 13461.

Court of Civil Appeals of Texas, Austin.

July 29, 1981.

Rehearing Denied Oct. 7, 1981.

David L. Orr, McGinnis, Lochridge & Kilgore, Austin, for appellant.

Robert J. Hearon, Jr., R. Clarke Heidrick, Jr., Graves, Dougherty, Hearon, Moody & Garwood, Austin, for appellee.

POWERS, Justice.

This appeal is taken from the trial court's denial of a temporary injunction.Appellant, Crestview, Ltd., purchased an office building encumbered by the lien of a recorded deed of trust.The deed of trust secured a promissory note made by Crestview's grantor and held by appellee, Foremost Insurance Company.¹The deed of trust contained this agreement:

"In the event Grantors, or any owner of the Mortgaged Premises, without first obtaining approval of Noteholder (which approval shall not be unreasonably withheld), should sell or otherwise dispose of the Mortgaged Premises, or any part thereof, at any time before this Deed of Trust is fully released and discharged, Noteholder shall have the option to declare the indebtedness hereby secured due and payable...."

We will refer to this provision as the "due on sale clause."²

Though requested to do so, Foremost never approved the sale of the property to Crestview.Foremost did, during the negotiations which led to the sale, offer to approve the sale in return for either a reduction in principal or a change in the interest rate to a higher rate than that provided in the promissory note it held.No agreement was reached in this regard.

Despite the fact that Foremost had not approved the sale, and knowing that fact, Crestview purchased the property.On being notified of the sale, Foremost immediately declared the installment debt due and payable and requested the trustee to sell the property when payment was not forthcoming from the maker, Crestview's grantor.The basis for such acceleration was, of course, the "due on sale clause."

Crestview filed suit in a Travis County district court before the trustee's sale, alleging that Foremost had unreasonably withheld its approval, had acted inequitably, unjustly and oppressively in accelerating the debt, and that the "due on sale clause" was an unreasonable restraint on alienation of property.Based upon these allegations, Crestview requested the trial court's declaratory judgment that the accelerated debt was invalid as a basis for the trustee's sale; and, requested temporary and permanent injunctive relief aimed at preventing the trustee's sale of the property to satisfy the debt.The trial court denied the application for temporary injunction and from that order of denial Crestview appealed to this Court.Ancillary to that appeal, we granted a temporary injunction, on Crestview's application, for the purpose of preserving our jurisdiction pending appellate review.Crestview, Ltd. v. Foremost Insurance Company, No. 13,451(Tex.Civ.App. Austin, February 27, 1981).

Having now considered the interlocutory appeal taken by Crestview from the trial court's denial of temporary injunction, we affirm the order of the trial court and dissolve the injunction issued earlier by this Court.

STANDARD FOR APPELLATE REVIEW

Crestview contends initially that the standard for our review is whether it presented in the trial court a prima facie case entitling it to a temporary injunction, rather than the more common standard of whether the trial court abused its discretion in refusing such relief.Crestview bases this contention upon the proposition that Tex.Rev.Civ.Stat.Ann. art. 4642, § 4 applies to "any threatened irreparable injury to real estate," within which phrase Crestview would include a sale by trustee under a power granted in a deed of trust.³We disagree with this interpretation of that statutory provision.

Section 4 of Article 4642 is not ambiguous and is written narrowly to apply in only two kinds of circumstances, in contrast to the more general circumstances referred to in the preceding sections of the statute, manifesting a legislative intention that Section 4 be applied literally.Brazos River Authority v. City of Graham, 163 Tex. 167, 354 S.W.2d 99(1961).The two kinds of circumstances specifically contemplated by Section 4 are not applicable in the present case, there being no threatened sale under writ of execution directed against a party having no interest in the property, nor any threatened injury to property.Crestview's complaint is one of threatened injury to its title and possession, and not one of injury to the property itself.We hold, then, that the standard for appellate review is the ordinary standard of whether the trial court abused its discretion in denying the temporary injunction.Brooks v. Expo Chemical Co., 576 S.W.2d 369(Tex.1979);Camp v. Shannon, 162 Tex. 515, 348 S.W.2d 517(1961);Davis v. Huey, 571 S.W.2d 859(Tex.1978).

ABUSE OF DISCRETION BY THE TRIAL COURT IN REFUSING TO GRANT

A TEMPORARY INJUNCTION

Crestview contends that even under the ordinary standard for appellate review, we must reverse the trial court's order because the court abused its discretion in that it applied the law erroneously to the undisputed facts.It did so, according to Crestview, by assigning an erroneous meaning to the "due on sale clause," a meaning which permitted Foremost to withhold its approval on any basis considered reasonable in light of all the circumstances.

Each party to this appeal cites a general line of cases in support of the meaning it would give to the "due on sale clause."

The cases cited by Crestview generally state or assume that a "due on sale clause," like all other provisions in a mortgage instrument, has the purpose of protecting the noteholder's security, and unless the unapproved transfer has posed a risk to that security, the right of acceleration will not be enforced.These cases hold generally that unless the clause is so restricted, it amounts to an unreasonable restraint on alienation; or, that equity ought to prevent enforcement of the right of acceleration when it is not exercised to accomplish the only purpose for which the clause was included in the mortgage instrument, acceleration for any other reason being unreasonable, unjust, inequitable or oppressive.These cases do not, however, hold the clause to be invalid per se, either on equitable grounds or because it is a restraint on alienation.The advocates of this point of view tend, rather transparently, to make the result turn on the status of the parties rather than on the terms of their contract and the established rules for interpreting and enforcing contracts.SeeWellenkamp v. Bank of America, 148 Cal.Rptr. 379, 582 P.2d 970(1978); Comment, "Judicial Treatment of the Due-On-Sale Clause: The Case for Adopting Standards of Reasonableness and Unconscionability,"27 Stan.L.Rev. 1109(1975).

The cases cited by Foremost, in support of the trial court's enforcement of the clause, generally uphold enforcement on a theory that it does not amount per se to an unreasonable restraint on alienation, and is therefore enforceable, often saying in addition that the clause should be enforced as written and agreed upon by competent parties, the court having neither the power nor the inclination to impose upon them a different bargain and agreement.These decisions permit the creditor's desire to increase the interest rate, or diminish his principal at the low rate, to serve as a basis for acceleration.They do not, however, rule out relieving a mortgagor from bad faith, unconscionable or inequitable conduct in a particular case.Mutual Federal Sav. & Loan Ass'n v. Wisconsin Wire Works, 58 Wis.2d 99, 205 N.W.2d 762(1973);Baker v. Loves Park Savings & Loan Ass'n, 61 Ill.2d 119, 333 N.E.2d 1(1975);Crockett v. First Federal Savings & Loan Ass'n, 289 N.C. 620, 224 S.E.2d 580(1976);Enforcement of Due-On Transfer Clauses, 13 Real Prop. Prob. &Tr. J. 891(1978).See alsoAnnot.69 A.L.R.3d 713 for an analysis of the cases in both lines of authority.

THE MEANING TO BE ASSIGNED TO THE PRESENT "DUE ON SALE CLAUSE"

The promissory note and deed of trust at issue in this case originated in Foremost's sale of the property to Crestview's grantor.In that transaction, the parties agreed that a large part of the purchase price would be deferred in its payment while bearing interest at a rate fixed in the note.These were two of many interdependent elements of the entire bargain reflected in the note and deed of trust.Another such element was that particular agreement we have named the "due on sale clause," by which the parties agreed concerning their rights and obligations in a future circumstance, a sale of the property by the mortgagor at a time before the debt was paid.

The "due on sale clause" is broad but not ambiguous.There can be no reasonable doubt of its intended meaning.Its very breadth is an indication of the generality of its intended effect to require the noteholder's approval in the case of any sale, or to permit him to terminate prematurely the deferred-payment arrangement if his approval is not obtained.The right of acceleration which arises in the noteholder, if the property is sold without his approval, is in this instance clear and unequivocal.Such clauses have heretofore been enforced precisely as written.A. R. Clark Investment Co. v. Green, 375 S.W.2d 425(Tex.1964).

The wording of the clause is singularly inapt to express a contractual intention that it be narrowly limited in its effect to one particular circumstance, that is, where a sale by the owner threatens to impair the security of the debt, and ineffective or inapplicable with respect to all other sales.The contracting parties expressly provided, and therefore intended, that Foremost have the contract right to re-examine the deferred-payment arrangement in its entirety, on any sale of the property, to withhold its consent to the sale on any reasonable basis,...