La Sala v. American Savings & Loan Association
California Supreme Court
489 P.2d 1113, 5 Cal. 3d 864, 97 Cal. Rptr. 849 (1971)
- Written by Whitney Kamerzel , JD
Facts
Frank and Grace La Sala (plaintiffs) borrowed money from American Savings & Loan Association (American) (defendant) and executed a promissory note and a deed of trust with a due-on-encumbrance provision. This provision allowed American to accelerate the loan if the La Salas executed a junior encumbrance on the secured property. The La Salas executed a junior encumbrance, and American sent them a letter waiving American’s right to accelerate in exchange for $150 and a 3 percent interest-rate increase on the loan. Meanwhile, another borrower, Dorothy Iford, borrowed money from American with the same due-on-encumbrance provision and, upon executing a junior encumbrance, was sent a similar letter from American that asked for a $50 fee and a 2 percent interest-rate increase in exchange for waiving the right to acceleration. The La Salas brought a class action against American for declaratory relief under the theory that the provisions were an invalid restraint on alienation. The superior court dismissed the class action, and the La Salas appealed.
Rule of Law
Issue
Holding and Reasoning (Tobriner, J.)
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