Hellbaum v. Lytton Savings & Loan Ass'n

CHRISTIAN, J.

Henry W. Hellbaum and Barbara Hellbaum Bunten appeal after their complaint for damages was dismissed upon the sustaining of a demurrer. The following narrative is taken from the complaint.

In March 1964, Leland Thompson and his wife executed a promissory note in the amount of $274,000 in favor of respondent Lytton Savings and Loan Association.. The note was secured by a deed of trust of real property owned by the Thompsons. It was prepared on a printed form containing a provision that in the event the obligors prepaid more than 20 percent of the original principal in any year, Lytton could require payment of an additional 180 days interest on the amount prepaid “to compensate holder for expenses in the

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loan.” This fee for prepayment was expressly made applicable to any early payment which the debtors might be compelled to make under a right of acceleration established in Lytton by a provision in the deed of trust that the entire balance of the obligation could be declared due and payable by Lytton upon any transfer of the property.

Appellants succeeded to the rights and obligations of the Thompsons through transactions not here material; they contracted to sell the property for $295,000 to other parties and applied to respondent for approval of an assumption by the prospective purchasers of the $263,748.38 balance then remaining unpaid on the principal obligation. Appellants allege that they made this request because the parties to the proposed sale were financially unable to meet the combined burden of the prepayment option fee and the loan fees which would be imposed by any lender in connection with a new loan. Lytton responded that it would consent to the assumption without imposing acceleration and the attendant prepayment fee only if the buyers would pay a 5 percent assumption fee. The buyers refused this offer and ultimately withdrew from the proposed transaction. Appellants defaulted in their payments to Lytton and their interest in the property was sold at a trustee’s sale.

Appellants then brought this action for damages in the amount of $31,000, representing the difference between the amount which would have been realized on the proposed sale and the amount owed under the secured promissory note. In three causes of action appellants sought relief upon the following alternative theories: (1) the provision for a prepayment fee upon accelerated payment required because of a transfer constituted an unlawful restraint on alienation; (2) the same provision constituted an unreasonable imposition of liquidated damages; (3) respondent acted negligently in processing the prospective buyers’ application for assumption of the loan. A general demurrer was sustained as to each cause of action without leave to amend.