Court Opinion

ID: 9582203
Source: CourtListenerOpinion
Date Created: 2023-08-21 22:23:49.438602+00
Date Added: 2024-06-11T13:37:32.059981
License: Public Domain

BISTLINE, Justice,
dissenting.
Almost thirty years ago two young attorneys, each with but five years of experience, confidently argued to this Court, then comprised of Justices Taylor, Porter, Givens, Thomas and Keeton, that penalties under the guise of liquidated damages in executing real estate purchase contracts were in fact penalty and hence against public policy and should be so declared. The confidence so placed was not in the ability of counsel, but rather confidence in that Court. That confidence was not misplaced. Graves v. Cupic, 75 Idaho 451, 272 P.2d 1020 (1954). Presented with the opportunity to rule on the practice of enforcing forfeitures or penalties against defaulting contract debtors, under whatever guise, this Court, as then constituted, was unanimous in declaring that “the provision is for a penalty and is unenforceable”, and “arbitrary and bears no reasonable relation to the damages which the parties could have anticipated ....” 75 Idaho at 459, 272 P.2d at 1025.
Today the same Supreme Court, differently constituted one may be certain, disdains the opportunity to continue with the holding and philosophy of the Graves-Cupic Court and its Graves-Cupic doctrine which has now been followed for thirty years.
The contractual provision which is here at issue is readily comprehended. It allows the lender at its whim and fancy, to exact the penalty of increasing the interest rate by two percent in any event where the borrower does anything with his property other than remain in it. Ostensibly it is aimed primarily at sales subject to existing encumbrances, but its sweep is unlimited. Such provisions were unknown in the days of Graves v. Cupic, but there should be little doubt in the minds of anyone but that the five justices above named would have made short shrift thereof. Not only do times change, but courts change. Nonetheless, courts leave behind them the case law which they have made. I had always thought, until recent years at least, it was as incumbent upon supreme courts, as it is on district courts and magistrate courts, to adhere to case law, or overrule it.
It takes little reflection to see that the provision allowing the lender to unilaterally raise the interest charge two percent upon a transfer of the security real estate is nothing but a penalty. On the face of the instrument is nothing whatever attempting to justify the provision. It is facially an arbitrary provision, an unconscionable penalty. Applied it is an unconscionable penalty, capriciously inserted in the instrument, not bargained for, and arbitrarily imposable. The California Supreme Court in a case which is somewhat a hybrid of Graves v. Cupic and this case held unanimously:
“We believe, however, that whatever dangers of this nature might be deemed to exist in the abstract, they do not justify the blanket restraint on alienation which the automatic enforcement of ‘due-on’ clauses with respect to installment land contracts would involve. It is to be emphasized in this respect that in the case of the installment land contract the vendor retains legal title until the pur*932chase price has been fully paid. Thus in the normal case the vendor, having received a small down payment and retaining legal title, has a considerable interest in maintaining the property until the total proceeds under contract are received; in this he differs markedly from the vendor of property where there has been an outright sale.
“It is true, of course, that from the point of view of the holder of the first lien, this interest of the trustor-vendor in the maintenance of the subject property cannot be fully equated within the interest of the trustor-vendor who himself remains in possession. It is also true that the former type of interest tends to decrease as the vendee’s equity in the property increases through continued payments. But these factors do not in themselves justify the oppressive restraint on alienation which would result from automatic enforcement of the ‘due-on’ clause whenever an installment land contract affecting the security is entered into.8
“For the foregoing reasons we hold that a ‘due-on’ clause contained in a promissory note or deed of trust is not to be enforced simply because the trustorobligor enters into an installment land contract for the sale of the security. 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. (See Hetland, Real Property and Real Property Security: The Well-Being of the Law (1965) 53 Cal.L.Rev. 151, 170; see also Cal.Real Estate Secured Transactions, supra, § 4.56, p. 184.) 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.9 Other legitimate interests of the lender may have a similar effect.10
“In the instant case defendants sought automatic enforcement of the ‘due-on’ clause. They made no effort to demonstrate how the installment land contract entered into between plaintiffs and the Nolls impinged upon their legitimate interests to an extent which would justify enforcement of the clause in the particular circumstances of the case.11 Nor did they attempt to show that the arrangement in any way endangered their primary recourse to plaintiffs for payment of their note.12 The trial court properly concluded that in these circumstances defendants’ purported exercise of the ‘due-on’ clause was an unreasonable restraint on alienation within the meaning of section 711 of the Civil Code and therefore a legal nullity.’’
*933Tucker v. Lassen Savings and Loan Ass’n, 12 Cal.3d 629, 116 Cal.Rptr. 633, 526 P.2d 1169, 1174-76 (1974).
That case was a forerunner to Wellenkamp v. Bank of America, 21 Cal.3d 943, 148 Cal.Rptr. 379, 582 P.2d 970 (1978), the rationale of which has no appeal to the majority of this Court — notwithstanding that a majority of the Court on occasion has been so enamored of California decisions that in Leliefeld v. Johnson, 104 Idaho 357, 659 P.2d 111 (1983), it relied on the rationale of two overruled California decisions to attain the result apparently deemed best.
Of course, one ought not be critical of an Idaho court for being more impressed with the writings of the High Court in Fidelity Federal Savings & Loan Ass’n v. De LaCuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982). Just as recently as ten days ago this Court foresook its own body of criminal law in search and seizure in order to embrace the High Court’s “totality of circumstances” newly conceived in Illinois v. Gates,-U.S.-, 103 S.Ct. 2317, 76 L.Ed.2d 527 (1983); State v. Lang, 105 Idaho 683, 672 P.2d 561 (1983).
I thought then, and say again, that this Court should maintain the degree of intellect and integrity of opinion for which it was noted in earlier years. Nothing whatever commands that this Court determine public policy in accordance with the views of the High Court. Today, as in Lang, the Court again dances to the federal fiddle. At the same time, without overruling prior case law, it blithely puts its stamp of approval on arbitrary provisions of contracts imposing penalties. In my view, the people of Idaho are entitled to opinions which, like legislative enactments, give proper regard to what has previously been declared to be the rule in Idaho.

 Indeed the beneficiary’s asserted concern that the trustor himself remain in possession in order to prevent waste and depreciation seems somewhat exaggerated in view of the fact, reflected in footnote 4, ante, that the “due-on” clause is not normally exercised when the subject property is leased to another by the trustor. (See Cal.Real Estate Secured Transactions, supra, § 4.61, pp. 187-188.)' The facts at bench, wherein the subject property was leased upon purchase to the very parties who later become vendees under the installment land contract, provide a case in point.

 In this respect the mere fact that the vendee under the installment land contract is not so good a credit risk as the trustor-vendor, while significant, would not be in itself determinative. As long as the trustor-vendor’s equitable interest in the security remains significant, he retains a real incentive to prevent default, and the credit standing of his vendee would not afford sufficient justification for en-*933clause. However, forcement of the “due-on: as the trustor-vendor’s equitable interest diminishes through payment by the vendee, his incentive to prevent default — as well as his incentive to prevent damage to or waste of the security — also diminishes, until the moment when his entire equitable interest has passed to the vendee. At this point the propriety of enforcing the clause is clear. The trustor-vendor will now have been provided with the means to discharge the balance secured by the trust deed, so that the quantum of actual restraint on alienation caused by enforcement at this point will be minimal. Moreover, the beneficiary will no longer have the benefit of the built-in incentive to prompt payment and preservation of the property which the trustor-vendor’s equitable interest provides. Accordingly, in a normal case the lender will be permitted to insist on enforcement of the “due-on” clause when the trustor-vendor’s entire equitable interest in the security has passed to the vendee.

 We reject the suggestion that a lender’s interest in maintaining its portfolio at current interest rates justifies the restraint imposed by the exercise of a “due-on” clause upon the execution of an installment land contract. Whatever cogency this argument may retain concerning the relatively mild restraint involved in the case of an outright sale (a matter to which we do not now address ourselves— see fn. 7, ante), it lacks all force in the case of the serious and extreme restraint which would result from the automatic enforcement of “due-on” clauses in the context of installment land contracts.

 Among the trial court’s findings of fact were the following: “XIII. The defendants made no investigation on regarding the Nolls to determine whether or not they were good loan risks, whether or not they were laying waste to the property or whether or not their security was in fact endangered in any respect by the Contract of Sale entered into between the plaintiffs and the Nolls.... ”

 The trial court found: “XV. The transaction between the Nolls and the plaintiffs in no way impaired the defendants’ security, and in fact it enhanced the defendants’ security because the plaintiffs retained a substantial equitable interest in the property. Prior to the execution of the Contract of Sale, the defendants had four people to look to for the payment of the obligation secured by the Deed of Trust. Once a Contract of Sale had been entered into, the defendants had six people who had a substantial interest in seeing to it that the payments under the note and Deed of Trust were made as required.”