TIERCE v. APS CO.78-231.
382 So.2d 485 (1979)
Memnon TIERCE, II
APS COMPANY and Campus Apartments Company.
APS COMPANY and Campus Apartments Company.
Supreme Court of Alabama.
November 2, 1979.
Rehearing Denied March 28, 1980.
Jule R. Herbert, Jr., Colin A. Barrett of Lee, Barrett & Mullins, Tuscaloosa, for appellant.
Robert B. Harwood, Jr., Tuscaloosa, for appellees.
This is an appeal from a final decree permanently enjoining appellant/defendant, Memnon Tierce, II from foreclosing a mortgage on certain property because of a prior sale of that property by appellee/plaintiff APS Company, to the other appellee/plaintiff Campus Apartments Company. We reverse.
APS Company is a partnership composed of three persons: C. H. Armstrong, A. W. Patton, Jr., and Alonzo J. Strickland, III. In May of 1975, APS entered into a contract, styled a Bond for Title, with Tierce. In the contract Tierce agreed to sell a certain 24 unit apartment complex to APS for the sum of $159,221.80. According to the terms of the contract, Tierce would retain title to the real estate until the principal due under the agreement was reduced to $155,000. When the principal was so reduced Tierce was required, under the terms
APS did in fact reduce the principal to $155,000 and requested Tierce to perform as agreed. APS's lawyer prepared, and submitted to Tierce, a mortgage and deed for him to accept. Tierce rejected the proposed mortgage on the grounds that it gave APS rights not granted in the original contract and was inconsistent with it. APS's attorney prepared another mortgage, which Tierce accepted. This second mortgage, which the three partners of APS executed, contained the following "due on sale" clause:
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Subsequent to the execution of the deed and mortgage, APS sold the premises to appellee/plaintiff Campus Apartments Company, a partnership composed of Alonzo J. Strickland, III, and David C. Smitherman. Campus Apartments agreed to assume the mortgage held by Tierce. APS did not notify Tierce of the transfer, nor did it attempt to obtain Tierce's consent to it.
Tierce accepted two checks from Smitherman for mortgage payments. Tierce then inquired of APS about the identity of Smitherman. He was then informed of the transfer of the property to Campus Apartments. The tendency of the evidence is that Tierce communicated to APS that he would accept the transfer if Campus Apartments agreed to pay a higher interest rate.
Campus Apartments refused to pay a higher interest rate, whereupon, Tierce gave, through counsel, written notice to APS of its default and his declaration that APS's obligations secured by the mortgage were immediately due and payable. Subsequent to delivery of this notice, APS and Campus Apartments instituted suit against Tierce asking, inter alia, the court to declare that APS had not defaulted and to enjoin Tierce from foreclosing. Tierce counterclaimed for a judicial foreclosure.
A trial on the merits was had at which APS's attorney, who had provided the mortgage instruments, testified he did not know the form he used contained a "due on sale" clause and that APS had not requested that such a clause be contained in the instrument.
The trial court expressly determined the following: (1) the "due on sale" clause was not openly stated and bargained for; (2) the conveyance to Campus Apartments by APS did not endanger Tierce's security; (3) the conveyance to Campus Apartments was not a default; and (4) Tierce's purpose in exercising its option to accelerate payment by foreclosure was to obtain an increased interest rate. Based on these findings, the trial court permanently enjoined Tierce from foreclosing on the mortgage in question for the reason of the conveyance to Campus Apartments. This appeal ensued.
The determinative issue on this appeal is whether a "due on sale" clause is per se invalid, unless a separate consideration has been given for it, when the mortgagee's primary purpose for accelerating payment is to obtain a higher interest rate. We find in the negative as to that issue and, therefore, reverse.
This holding in Tidwell has never been altered or reversed.
However, in 1977, the Court of Civil Appeals decided the case of First Southern Federal Sav. & Loan Ass'n of Mobile v. Britton,
In Tidwell, this court clearly stated that it would not attempt to rewrite contracts for the parties. It was made clear that "due on sale" clauses were enforceable. The holding was not conditioned on the intent of the mortgagee when enforcing the clause.
In Britton, the Court of Civil Appeals held, in effect, that the court must look to the purposes of the lender in enforcing "due on sale" clauses. The appellate court in Britton indicated that "due on sale" clauses would be enforceable if the lender's enforcement of such a clause was based on a legitimate business purpose; however, the purpose of forcing an acceptance of an increased interest rate from persons attempting to assume mortgages was held not to be a valid business purpose. Hence, "due on sale" clauses would not be enforceable in such situations; in essence, that mortgagees could not enforce "due on sale" clauses, if the motive was to obtain an increased interest rate from a buyer, unless the clause had been expressly and separately bargained for.
We find the holding in Britton in error. Clearly the holding in Britton is not the majority rule in the United States. See generally Annotation, Acceleration Clause—Transfer of Property, 69 A.L.R.3d 713 (1976). We do, however, recognize that some courts have decided cases as Britton was decided. See, e. g. Mutual Federal Savings & Loan Association v. Wisconsin Wire Works,
We cannot, however, agree that the desire of a lender to terminate loans upon transfers, due to rising interest rates, is not a valid business purpose, thus rendering a
In this case there was no evidence it would be unconscionable for Tierce to foreclose on the mortgage which APS had freely executed. In fact, APS's own attorney prepared the mortgage instrument. It is clear that the trial court's decree is erroneous as a matter of law, therefore, must be reversed.
For the reasons assigned, the judgment is due to be, and is hereby, reversed and remanded for further proceedings not inconsistent with this opinion.
REVERSED AND REMANDED.
TORBERT, C. J., and BLOODWORTH and ALMON, JJ., concur.
FAULKNER, J., concurs specially.
FAULKNER, Justice (concurring specially):
I concur in the majority opinion authored by Mr. Justice Embry because there are no facts shown here that render the invocation of the "due on sale clause" unconscionable.
ON APPLICATION FOR REHEARING
TORBERT, Chief Justice (dissenting).
A majority of this Court has denied application for rehearing in this case. I originally voted with the majority to reverse and remand the decision of the Tuscaloosa Circuit Court permanently enjoining Tierce from foreclosing on the mortgage in question for the reason of the conveyance to Campus Apartments. I concurred with the original majority opinion because I agreed with the holding that the "due on sale" clause is not per se invalid. I am still committed to that proposition of law. Both parties filed excellent briefs on application for rehearing and upon further study and reflection, I am now convinced that rehearing should be granted.
The traditional and customary purpose of the "due on sale" clause has been to protect against impairment of the lender's security. The trial court specifically held that Tierce had adequate security and that the conveyance from APS Company to Campus Apartments Company did not endanger the security. The trial court further specifically held that the defendant's purpose in threatening to exercise the option of accelerated payment by foreclosure was to force an acceptance of an increase in the interest rate. A majority of this Court has rewritten the agreement between the parties in the instant case and the meaning of the "due on sale" clause in many other existing agreements so that that clause may legally be used for the hidden purpose, not within the contemplation of the parties when they signed the agreement, of allowing the mortgagee upon default to condition his acceptance of a transferee of the mortgagor, upon the transferee's agreement to pay a higher rate of interest than the interest agreed to in the contract. I would hold that the parties may, if they so desire, contract that the "due on sale" clause may be used as a device by the mortgagee to obtain a higher
In the order permanently enjoining Memnon Tierce, II, from foreclosing on the APS mortgage because of the conveyance from APS to Campus Apartments, the trial court made the following findings of fact:
The holding of the trial court, ore tenus, as to those findings of fact should not be reversed unless plainly erroneous. Baptist Foundation of Alabama v. Penn, 295 Ala. 122,
The question dispositive of this case is: Whether a "due-on-sale" clause may be used by a mortgagee to force a higher rate of interest on the transferee of the mortgagor by threatening foreclosure, where such use was not stated in the contract, where the clause was not openly bargained for, and where the conveyance did not endanger the mortgagee's security. I would answer that question in the negative and hold that the "due-on-sale" clause gives the mortgagee the right to approve or reject the assumption but not the right to condition approval of the assumption only at a greater rate of interest unless the contract specifically provides otherwise. The "due-on-sale" clauses have traditionally been used as a device to protect against impairment of the mortgagee's security, not as a device to insure that the contract interest rate keeps up with spiralling inflation.
The basic unfairness which results from sanctioning the use of a "due-on-sale"
Note, "Mortgages—A Catalogue and Critique on the Role of Equity in the Enforcement of Modern Day `Due-on-Sale' Clauses," 26 Ark.L.Rev. 485 (1973) (emphasis added).
I recognize that the courts of other jurisdictions are split on this issue
First Southern Federal Savings and Loan Association of Mobile v. Britton,
In the instant case the trial court held: (1) The foreclosure based on the "due-on-sale" clause was not necessary to protect the lender's security because the conveyance did not impair the lender's security, and (2) the hidden purpose of the lender in using the "due-on-sale" clause to effectuate a foreclosure was to obtain a higher rate of interest. I would hold that the "due-on-sale" clause may be used only in accord with the parties' expectations for the purpose traditionally, historically, and customarily ascribed to that clause, i. e., protection against impairment of the lender's security. If the parties wish to condition the mortgagor's right to transfer his property on acceptance of a higher rate of interest to be paid to the mortgagee, they should so provide, explicitly, in the contract.
MADDOX and SHORES, JJ., concur.
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