Wells Fargo Bank, N.A. v. Bank of America NT&SA

In 1929, First National Bank of Beverly Hills (First National) entered into a 95-year ground lease with several families who owned property in Beverly Hills. The lease stated that the monthly rent would nominally be $2,000 for the duration of the lease, subject to a gold clause. The gold clause was an attempt to index the rent to inflation by requiring the lessee to pay each month’s rent as a fixed amount of gold—namely, the weight of gold that was worth $2,000 at the inception of the lease. In 1933, Congress passed a statute making gold clauses unenforceable. This statute nullified the lease’s gold clause, causing the rent to return to $2,000 per month. In 1977, Congress changed course, making gold clauses enforceable for obligations issued after 1977. By the 1980s, Triangle Company had become successor in interest to First National’s leasehold and was subleasing the land to Bank of America NT&SA (Bank of America) (defendant). Triangle had been paying the original lessors’ successors (lessors) (plaintiffs) $2,000 every month. In 1981, Bank of America and Triangle entered into a transaction in which Bank of America paid over $4 million to replace Triangle as the lessee under the 1929 lease, extinguishing Triangle’s interest. Several years later, the lessors learned that this transaction may have constituted a novation, resurrecting the original lease’s gold clause. If the gold clause were enforceable, Bank of America’s monthly rent would have fluctuated between approximately $31,000 and $47,000. The lessors demanded that Bank of America begin paying rent as calculated by the gold clause. Bank of America continued paying only $2,000 per month. The lessors then sued Bank of America for breach of contract. The trial court ruled in favor of Bank of America, and the lessors appealed.