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Gutzi Associates v. Switzer

215 Cal. App. 3d 1636 (1989)

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Gutzi Associates v. Switzer

California Court of Appeal
215 Cal. App. 3d 1636 (1989)

Facts

Gutzi Associates (Gutzi) (plaintiff) owned a commercial building. The building was subject to a deed of trust securing a promissory note issued by Gutzi to Safeco Life Insurance Company (Safeco). Gutzi sold the building to Bruce and Jean Switzer (defendants). To finance the purchase, Gutzi and the Switzers executed an all-inclusive trust deed (AITD) that wrapped Gutzi’s original promissory note to Safeco. Under the AITD, the Switzers paid enough to Gutzi to cover both their obligation to Gutzi and Gutzi’s obligation to Safeco, which Gutzi agreed to forward to Safeco. The AITD allowed for three principal-reduction payments, along with monthly principal and interest payments for a term of 25 years. The AITD also contained a lock-in provision providing that “there shall be no prepayment option during the loan, other than the three principal reductions.” Several years after the execution of the AITD, the Switzers unilaterally prepaid the remaining obligation of Gutzi to Safeco and informed Gutzi that they had done so. Gutzi then filed an action seeking declaratory relief, arguing that the Switzers’ prepayment to Safeco was barred by the lock-in provision in the AITD. The trial court ruled in favor of the Switzers, holding that the lock-in provision was unenforceable. Gutzi appealed.

Rule of Law

Issue

Holding and Reasoning (Fogel, J.)

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