Court Opinion

ID: 6757266
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:28:13.052173+00
Date Added: 2024-06-11T16:02:28.923424
License: Public Domain

Per Curiam.

In the past decade there have been numerous decisions regarding the enforceability of clauses such as the one contained in paragraph seven of appellees’ second mortgage deed, known as “due on sale” clauses. Some jurisdictions have held that such clauses are enforceable only when the obligee can demonstrate a threat to one of its legitimate interests regarding the property or the obligation itself.
These jurisdictions have determined that “due on sale” clauses constitute significant restraints on alienation and that enforcement of such clauses cannot be justified by any positive effect such enforcement might have on the mortgage money market, particularly because such clauses fail to fully disclose the fact that they may be used to update a financial institution’s mortgage portfolio and because such clauses are often the product of an inherently unequal bargaining process. See Patton v. First Federal Sav. & Loan Assn. (1978), 118 Ariz. 473, 578 P. 2d 152; Tucker v. Pulaski Federal Sav. & Loan Assn. (1972), 252 Ark. 849, 481 S.W. 2d 725; Tucker v. Lassen Sav. & Loan Assn. (1974), 12 Cal. 3d 629, 526 P. 2d 1169; Wellenkamp v. Bank of America (1978), 21 Cal. 3d 943, 582 P. 2d 970; Sanders v. Hicks (Miss. 1975), 317 So. 2d 61; Continental Fed. Sav. & Loan Assn. v. Fetter {Okla. 1977), 564 P. 2d 1013.
*507Other jurisdictions have held that such clauses are ordinarily enforceable, even if enforcement is not based on reasonable doubts regarding impairment of the security or return on the obligee’s investment. In these jurisdictions the restraint is ordinarily viewed as relatively slight because sales utilizing conventional financing are not precluded.
These courts have determined that such a restraint is enforceable because it is freely bargained for, encourages the flow of mortgage money, and prevents borrowers from using any interest differential to make a profit. See Tierce v. APS Co. (Ala. 1980), 382 So. 2d 485; Malouff v. Midland Federal Sav. & Loan Assn. (1973), 181 Colo. 294, 509 P. 2d 1240; Bakery. Loves Park Sav. & Loan Assn. (1975), 61 Ill. 2d 119, 333 N.E. 2d 1; Occidental Sav. & Loan Assn. v. Venco Partnership (1980), 206 Neb. 469, 293 N.W. 2d 843; First Commercial Title, Inc. v. Holmes (1976), 92 Nev. 363, 550 P. 2d 1271; Crockett v. First Federal Sav. & Loan Assn. (1976), 289 N.C. 620, 224 S.E. 2d 580; Gunther v. White (Tenn. 1973), 489 S.W. 2d 529; Walker Bank & Trust Co. v. Neilson (1971), 26 Utah 2d 383, 490 P. 2d 328; Mutual Federal Sav. & Loan Assn. v. Wisconsin Wire Works (1976), 71 Wis. 2d 531, 239 N.W. 2d 20.
Even those jurisdictions holding that “due on sale” clauses are ordinarily enforceable have held that such enforcement is subject to equitable defenses such as estoppel and unconscio-nability. Inasmuch as we hold that appellant is estopped from enforcing the clause against appellees, we need not reach the issue of whether such clauses are enforceable when the obligee does not have a reasonable concern regarding impairment of its security or return on its investment.
In In re Estate of Basmajian (1944), 142 Ohio St. 483, this court at page 494, stated:
“An estoppel arises where one is concerned in or does an act which in equity and good conscience will preclude him from averring anything to the contrary, as where another has been innocently misled into some injurious change of position.”
GNS would be estopped from enforcing paragraph seven against appellees if its actions led appellees to make a sale in reliance on the representations inherent in appellant’s actions, and if that reliance was reasonable under the circumstances.
*508Both appellant’s vice-president and its loan officer were told by Nick Ingarra of his desire to sell the property by means of an installment land sales contract prior to entering into any agreement with the Gruiches. Neither of these officers made any effort to notify Ingarra of the possible ramifications of such a sale but, instead, encouraged his efforts — the vice-president by telling him that doctors might possibly be good buyers of such property and the loan officer by telling him that he would not have to pay closing costs on a third mortgage if he sold the premises.
Such behavior was particularly inequitable due to the relative positions of the parties and the nature of the clause itself. Although appellees were commercially developing the property, they certainly were not sophisticated business people. It was not unreasonable for appellees to believe that the clause would only be resorted to if the purchaser presented some sort of credit risk, not merely in order to increase the interest rate of the loan. Consequently, it was reasonable for appellees to believe that their sale of the property would in no way alter their arrangement with appellant and to proceed with the sale as a result of this belief.
In addition, after appellees agreed to sell the property, but before the closing, the loan officer indicated that the appellant had no objection to the sale. Although the Gruiches might have been able to specifically enforce the sales agreement, the threat of foreclosure, which would have forced them to find alternative and higher interest financing, might well have led to a mutual termination of the agreement.
Clearly by the time the bank notified appellees of its objections and of its use of paragraph seven, the Gruich deal was too far advanced for mutual rescission.
Under the facts of the case at bar, this court holds that appellant is estopped from enforcing paragraph seven of the second mortgage deed against the appellees.
Accordingly, the judgment of the Court of Appeals is affirmed.

Judgment affirmed.

Celebrezze, C. J., Sweeney, Holmes and C. Brown, JJ., concur.
*509W. Brown, Rutherford and Moyer, JJ., dissent.
Rutherford, J., of the Fifth Appellate District, sitting for P. Brown, J.
Moyer, J., of the Tenth Appellate District, sitting for Locher, J.