Case Name: Glenn B. LAKE and Susan K. Lake, husband and wife; and James M. Norfleet and Martha K. Norfleet, husband and wife, Plaintiff-Counterdefendants-Appellants, v. EQUITABLE SAVINGS AND LOAN ASSOCIATION, an Oregon corporation, Defendant-Counterclaimant-Respondent
Court: Idaho Supreme Court
Jurisdiction: Idaho
Decision Date: 1983-12-02
Citations: 105 Idaho 923
Docket Number: No. 14119
Parties: Glenn B. LAKE and Susan K. Lake, husband and wife; and James M. Norfleet and Martha K. Norfleet, husband and wife, Plaintiff-Counterdefendants-Appellants, v. EQUITABLE SAVINGS AND LOAN ASSOCIATION, an Oregon corporation, Defendant-Counterclaimant-Respondent.
Judges: BAKES and HUNTLEY, JJ„ concur.
Reporter: Idaho Reports
Volume: 105
Pages: 923–933

Head Matter:
674 P.2d 419
Glenn B. LAKE and Susan K. Lake, husband and wife; and James M. Norfleet and Martha K. Norfleet, husband and wife, Plaintiff-Counterdefendants-Appellants, v. EQUITABLE SAVINGS AND LOAN ASSOCIATION, an Oregon corporation, Defendant-Counterclaimant-Respondent.
No. 14119.
Supreme Court of Idaho.
Dec. 2, 1983.
Fredric V. Shoemaker, of Clemons, Cosho & Humphrey, P.A., Boise, James B. Donart, Ketchum, for plaintiff-counterdefendantsappellants.
Gary D. Babbitt, Hawley Troxell Ennis & Hawley, Boise, for defendant-counterclaim-ant-respondent.

Opinion:
DONALDSON, Chief Justice. .
In 1979, Glenn B. and Susan K. Lake purchased a home from an owner who had borrowed money from Equitable Savings. As security for the loan, the previous owners, Martha K. and James M. Norfleet, had given Equitable Savings a Deed of Trust containing a due-on-sale clause, a contractual provision that permits the lender to declare the entire balance of a loan immediately due and payable if the property securing the loan is sold or otherwise transferred. The contract in question contained a clause that stated that Equitable would consent to a transfer if the purchasing party agreed- to increase the interest rate two percentage points. The Lakes wanted to assume this loan but, when notified of the transfer, Equitable Savings gave notice of its intent to enforce the due-on-sale clause. Equitable Savings expressed a willingness to consent to the transfer, however, if the Lakes agreed to increase the interest rate on the loan secured by the property from 9V2 percent to 11% percent as set forth in the agreement.
The Lakes agreed under protest to pay the increase in interest rate and then brought a declaratory judgment action seeking a declaration that the due-on-sale clause was an unreasonable restraint on the alienation of the property and against public policy. The district court found otherwise and this appeal followed.
The issue raised on appeal is whether or not the trial court erred in concluding that the due-on-sale clause in the Deed of Trust is valid. On appeal, the Lakes argue that the due-on-sale clause in the deed is an unreasonable restraint on the alienation of property as well as being inequitable and unconscionable.
At oral argument both parties argued the applicability of a recent United States Supreme Court case and an Act recently passed by Congress. Since the transfer of the home in this case and the assumption of the loan by the Lakes, the United States Supreme Court in Fidelity Federal Savings & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664, (1982), held that a regulation issued by the Federal Home Loan Bank Board, permitting federal savings and loan associations to use due-on-sale clauses in their mortgage contracts, preempted a contrary state law. However, because Fidelity Federal applies to federal savings and loan and Equitable Savings, at the time of this transfer was a state savings and loan, Fidelity Federal is not dispositive of the issue presented by the appellants.
After Fidelity Federal was decided, Congress passed the Garn-St. Germain Depository Institutions Act of 1982, Pub.L. No. 97-320, 96 Stat. 1469 (1982), that became effective October 15, 1982, and applied to state savings and loan corporations. Basically, the Act states that unless an exception applies a state lender may "enforce a contract containing a due-on-sale clause with respect to a real property loan." § 341(b)(1). At oral argument the parties both argued the applicability of this Act. However, § 341(c)(2)(B) specifically states that "[a] lender may not exercise its option pursuant to a due-on-sale clause in the case of a transfer of a real property loan which is subject to this subsection where the transfer occurred prior to the date of enactment of this Act." Because the transfer in question occurred in November, 1979 and this Act became effective October 15, 1982, the Act does not apply to the issues presented on this appeal. Therefore, it is necessary for this Court to independently analyze the clause to determine its validity.
As stated, the appellants argue that the due-on-sale clause in the Deed of Trust is an unreasonable restraint on the alienation of property. Restatement of Property § 404 (1944), defines a restraint on alienation as follows:
"(1) A restraint on alienation, as that phrase is used in this Restatement, is an attempt by an otherwise effective conveyance or contract to cause a later conveyance
(a) to be void; or
(b) to impose contractual liability on the one who makes the later conveyance when such liability results from a breach of an agreement not to convey; or
(c) to terminate or subject to termination all or a part of the property interest conveyed."
"It is obvious that a due-on-sale mortgage provision does not cause any of the above results and therefore cannot be categorized as a direct restraint on alienation." Martin v. Peoples Mutual Savings & Loan Ass'n., 319 N.W.2d 220, 228 (Iowa 1982). The clause in question does not preclude the owner-mortgagor from conveying his property." The owner is free to convey without legal restraint and the conveyance does not cause a forfeiture of the title, but only an acceleration of the debt." Occidental Savings & Loan Ass'n. v. Venco Partnership, 206 Neb. 469, 293 N.W.2d 843, 845 (1980). See also Williams v. First Federal Savings & Loan Ass'n., 651 F.2d 910 (4th Cir.1981); Martin v. Peoples Mutual Savings & Loan Ass'n., supra; Mills v. Nashua Federal Savings & Loan Ass'n., 121 N.H. 722, 433 A.2d 1312 (1981); see generally Enforcement of Due-on-Transfer Clauses, 13 Real Prop., Prob. and Tr.J. 891 (1978). "To label the loss of a purported favorable economic position as a restraint on alienation is a miscon ception of that doctrine, which was not intended to provide profitability of alienation, but only the ability to alienate without penalty." Enforcement of Due-on-Transfer Clauses, supra, at 926.
Even if the due-on-sale clause is not a direct restraint on alienation, the Lakes also argue that it is an indirect restraint because it has the practical effect of suppressing the marketability of the property. Certainly, there is a possibility that an acceleration may impede the ability of an owner to sell his property in the manner he wishes but not every impediment to a sale is a restraint on alienation. In fact, zoning restrictions, building restrictions, or public improvements often impede the sale and substantially affect the ability of an owner to realize a maximum price but no one suggests that such restrictions are invalid simply because they affect the ease with which one may dispose of one's property. Occidental Savings & Loan, Ass'n., supra. As stated by the Court in Occidental Savings & Loan, supra, at 847-848:
"If we conclude that a 'due on sale' clause is an unreasonable restraint on alienation and is, therefore, void, it may follow that mortgages of short duration (less than 3 or 4 years) with variable rates are likewise invalid as indirect restraints on alienation. Certainly, whatever arguments are made about the inability to convey property because of a 'due on sale' clause, may also be made with regard to a mortgage that must be renegotiated within 2 or 3 years after the sale at a price which the subsequent buyer may not be able to determine. It is true that the current owner of the property will be faced with the same problems whenever a short-term rollover mortgage or variable interest rate is placed upon the property and, therefore, the problems are not unique to a subsequent seller. Nevertheless, if the rationale for declaring a 'due on sale' clause invalid as a restraint on alienation is based upon some notion that buyers will be less willing to buy at a premium property that does not have a long-term fixed mortgage, then one must conclude that short-term variable rates and rollover mortgages will similarly impede the sale of property and constitute indirect restraints on the free conveyance of property, and should, therefore, be held invalid."
The Lakes argue that this Court should follow the California Supreme Court's decision in Wellenkamp v. Bank of America, 21 Cal.3d 943, 148 Cal.Rptr. 379, 582 P.2d 970 (1978). In Wellenkamp, the court determined that a due-on-sale clause was unenforceable unless the lender could demonstrate that enforcement was reasonably necessary to protect the lender against the impairment of its security. The court in Wellenkamp seemingly based its opinion on considerations of social need and after balancing the rights and needs of the lender the court concluded that the needs of the seller outweighed those of the lender. At first blush the result reached in Wellenkamp seems to be in the best interests of everyone except the lender. However, the Federal Home Loan Bank Board has estimated that restrictions on the exercise of due-on-sale clauses in California accounted for forty percent of the total losses suffered in 1981 by state-chartered associations in the state — $200 million — resulting in less money available to potential borrowers. Fidelity Federal Savings & Loan, 102 S.Ct. at 3030 n. 21. Also, fewer loans would be available to borrowers because the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, which purchased the bulk of mortgages sold in the secondary mortgage market, require due-on-sale clauses before these associations will purchase the loans. "The marketability of a mortgage in the secondary market is critical to a savings and loan, for it thereby can sell mortgages to obtain funds to make additional home loans." Fidelity Federal Savings & Loan, 102 S.Ct. at 3023 n. 10.
Therefore, we decline to follow the Wellenkamp decision and, instead, hold that even though the due-on-sale clause may affect the ease with which one may dispose of one's property as a matter of law, the due-on-sale clause is neither a direct nor indirect restraint on alienation and, therefore, is not void as such.
The Lakes also argue that this due-on-sale clause is unconscionable and against public policy. This Court has stated that "[a]n agreement voluntarily made between competent persons is not likely to be set aside on public policy grounds." Foremost Insurance Co. v. Putzier, 100 Idaho 883, 887, 606 P.2d 987, 991 (1980). It has also been stated that public policy should not be allowed to curtail the liberty to contract unless the preservation of the general public welfare demands it. Martin v. People Mutual Savings & Loan Ass'n., 319 N.W.2d 220 (Iowa 1982). The majority of jurisdictions permits enforcement of acceleration provisions. These jurisdictions include Tierce v. APS Co., 382 So.2d 485 (Ala.1979); Malouff v. Midland Federal Savings & Loan Ass'n., 181 Colo. 294, 509 P.2d 1240 (1973); Baker v. Loves Park Savings & Loan Ass'n., 61 Ill.2d 119, 333 N.E.2d 1 (1975); Taliancich v. Union Savings & Loan Ass'n., 142 So.2d 626 (La.Ct.App.1962) (cf. Rayford v. Louisiana Savings Ass'n., 380 So.2d 1232 (La.Ct.App.1980) (would not enforce acceleration clause when transfer was strictly between original mortgagors)); Chapman v. Ford, 246 Md. 42, 227 A.2d 26 (1967); Dunham v. Ware Savings Bank, 384 Mass. 63, 423 N.E.2d 998 (1981); Holiday Acres No. 3 v. Midwest Federal Savings & Loan Ass'n., 308 N.W.2d 471 (Minn.1981); Occidental Savings & Loan Ass'n. v. Venco Partnership, 206 Neb. 469, 293 N.W.2d 843 (1980); First Commercial Title, Inc. v. Holmes, 92 Nev. 363, 550 P.2d 1271 (1976); Mills v. Nashua Federal Savings & Loan Ass'n., 121 N.H. 722, 433 A.2d 1312 (1981); Century Federal Savings & Loan Ass'n. v. Van Glahn, 144 N.J.Super. 48, 364 A.2d 558 (1976); Ceravolo v. Buckner, 111 Misc.2d 676, 444 N.Y.S.2d 861 (1981); First Federal Savings & Loan Ass'n. v. Jenkins, 109 Misc.2d 715, 441 N.Y.S.2d 373 (1981); Stith v. Hudson City Savings Institution, 63 Misc.2d 863, 313 N.Y.S.2d 804 (1970) (cf. Silver v. Rochester Savings Bank, 73 A.D.2d 81, 424 N.Y.S.2d 945 (1980)); Crockett v. First Federal Savings & Loan Ass'n., 289 N.C. 620, 224 S.E.2d 580 (1976) Northwestern Federal Savings & Loan Ass'n. v. Ternes, 315 N.W.2d 296 (N.D.1982); People's Savings Ass'n. v. Standard Industries, Inc., 22 Ohio App.2d 35, 257 N.E.2d 406 (1970) (cf. Great Northern Savings Co. v. Ingarra, 66 Ohio St.2d 503, 423 N.E.2d 128 (1981) (issue not reached)); First Federal Savings & Loan Ass'n. v. Kelly, 312 N.W.2d 476 (S.D.1981) (statute controlled); Gunther v. White, 489 S.W.2d 529 (Tenn.1973); Crestview, Ltd. v. Foremost Insurance Co., 621 S.W.2d 816 (Tex.Civ.App.1981); Sonny Arnold, Inc. v. Sentry Savings Ass'n., 615 S.W.2d 333 (Tex.Civ.App.1981); Walker Bank & Trust Co. v. Neilson, 26 Utah 2d 383, 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); Mutual Federal Savings & Loan Ass'n. v. Wisconsin Wire Works, 71 Wis.2d 531, 239 N.W.2d 20 (1976). In our view, the due-on-sale clause that permits the acceleration of the loan is not repugnant to public policy, but, to the contrary, under certain economic circumstances the clauses may favor the public interest and, therefore, be supportive of public policy. Occidental Savings & Loan, supra.
We hold that this particular due-on-sale clause is valid and enforceable. Therefore, we affirm the judgment of the trial court.
Costs to Respondent.
No attorney fees on appeal.
BAKES and HUNTLEY, JJ" concur.
. The clause stated:
"11. Transfer of Property; Assumption; Conditions.
"a. This loan is personal to Grantor and not assignable. In making it, Beneficiary has relied on Grantor's credit, Grantor's interest in the Trust Property, and financial market conditions at the time this loan is made. If Grantor transfers or contracts to transfer title to or possession of all or part of the Trust Property, by deed, contract of sale, lease or similar agreement, Beneficiary may declare the entire balance of this loan immediately due and payable, "b. Beneficiary will waive its right under sub-paragraph 11.a. if the following conditions are met: (1) The credit of the third party is satisfactory to Beneficiary; and (2) the third party shall assume full personal liability for payment and performance of the note, Deed of Trust and other security instruments; and (3) a charge for administrative costs is paid to Beneficiary; and (4) if required by Beneficiary, either the interest rate on ,-he secured loan is increased by not more than two (2%) percent, or Beneficiary is paid a lump sum compensation not to exceed two (2%) percent of the loan balance at the time of assumption.
"c. Any increase in the interest rate shall entitle Beneficiary to increase the monthly payments so the secured debt will be paid in full by the maturity date of this Deed of Trust.
"d. Assumption does not release Grantor or any successor in interest from personal liability for payment and performance of the terms and conditions of this loan."