Opinion
Hearing Granted Jan. 28, 1971.
Opinion on pages 1012 to 1020 omitted
HEARING GRANTED
Rich & Ezer and Robert H. Somers, Beverly Hills, for plaintiffs and appellants.
Daniel S. McDonald, Daniel L. Shafton, Mark Brandler, Beverly Hills, and John R. Hetland, Berkeley, for defendants and respondents.
THOMPSON, Associate Justice.
Appellants, plaintiffs in a purported class action, appeal from an order dismissing their first amended complaint 'without prejudice.' We affirm the judgment.
Pleadings
The first amended complaint alleges the following. The two named plaintiffs, La Sala and Iford, each in a separate transaction, borrowed from the defendant savings and loan sums secured by a trust deed upon property of the respective plaintiff. The deed of trust executed by each plaintiff is on a form prepared by the savings and loan which 'contains in fine print on the reverse side a clause stating: 'Should Trustor sell, convey, transfer, dispose of or further encumber said property, or any part thereof, or any interest therein, or agree so to do without the written consent of Beneficiary being first obtained, then Beneficiary shall have the right, at its option, to declare all sums secured hereby forthwith due and payable.'' The named plaintiffs did not execute a separate acknowledgment that they had been informed that the quoted provision gave to the savings and loan a right to accelerate the loan in the event of further encumbrance. Approximately six and eleven years, respectively, after executing the trust deeds to the savings and loan, La Sala and Iford, the named plaintiffs, borrowed sums from other persons and each gave a second trust deed upon his property as security for the new borrowing. The savings and loan, by writing, informed each of the named plaintiffs of its right to accelerate and told them that it would waive the right upon the payment of a waiver fee and modification of the secured note increasing the interest rate.
The complaint alleges that it is brought on behalf of the named plaintiffs and a class of persons consisting of those who had borrowed money from the savings and loan during the preceding four years and had executed a deed of trust containing an acceleration clause in language 'substantially similar to that contained in the deed of trust executed by the named plaintiffs.' It is alleged that each of the members of the class sought to borrow funds secured by an encumbrance junior to that granted the savings and loan, that they received a communication similar to that received by the named plaintiffs, and that they either did not complete the contemplated subordinate loan or agreed to conditions of a waiver fee and increased interest imposed by the savings and loan.
'An actual conflict' is alleged between all of the plaintiffs, both named and members of the class, and the savings and loan respecting the enforceability of the acceleration clause. Plaintiffs' contention is stated to the effect that the clause: violates 'section 711 and 1671 of the Civil Code of the State of California,' is void as a restraint on alienation against public policy, and was not bargained for or within the contemplation of the parties at the time of execution of the deed of trust. The complaint prays for a preliminary and permanent injunction against enforcement [91 Cal.Rptr. 241] of the acceleration clause, for a declaration that it is void, for damages in an amount to be ascertained, for exemplary damages in the amount of $500,000, and for 'reasonable attorneys' fees.'
The savings and loan filed a general demurrer to the first amended complaint. The appellants, plaintiffs, moved for a preliminary injunction.
Proceedings in the Trial Court
The demurrer and application for preliminary injunction were calendared for hearing on the same day. At the beginning of the hearing, respondents' counsel stated: '* * * with respect to both of the named plaintiffs * * * with respect to the financing that has already occurred we waive our rights under our 'due on sale' on encumbrance clause.' Respondents' counsel stated further: '[Appellants'] counsel reminded me that we have stipulated that we will not seek damages against the plaintiffs for any activity relating to this lawsuit to date.'
The trial court, on its own motion, placed the demurrer and motion for preliminary injunction off calendar because of its determination that there is no justiciable issue before the court at this time with respect to this litigation. On respondents' oral motion and over the oral opposition of appellants, it dismissed the first amended complaint 'without prejudice.'
Issues on Appeal
In their brief, appellants do not question the procedural propriety of the trial court's having acted upon the basis of an oral and apparently unnoticed motion. They contend rather that the trial court erred in denying them a declaration of their rights. There having been no objection to the procedure followed in the trial court in ruling on the motion and appellants having participated in the proceedings, we ignore any technical impropriety. (See Auberry Union School District v. Rafferty, 226 Cal.App.2d 599, 38 Cal.Rptr.223.) We conclude that the trial court properly exercised its discretion to deny declaratory relief to the named plaintiffs and that it committed no prejudicial error in dismissing the first amended complaint as to the class.
Propriety of Dismissal--Named Plaintiffs
Appellants contend, as the named plaintiffs in the action, that the dismissal by the trial court denied to them a declaration of rights to which they were entitled, although the declaration might be adverse. We reject appellants' contention that the case at bench must be reversed for the claimed defect.
The trial court properly dismissed the first amended complaint to the extent it asserted a right to declaratory relief on behalf of the named plaintiffs. Code of Civil Procedure section 1061 provides: 'The court may refuse to exercise the power [to grant declaratory relief] * * * where its declaration or determination is not necessary or proper at the time under all the circumstances.' That statute grants a discretion to the trial court to refuse to hear a declaratory relief action. While the discretion is not absolute (see Witkin, California Procedure, § 450, and cases there cited), its exercise must be sustained on appeal if the trial court's refusal to exercise its power is supported by a substantial reason. (General of America Ins. Co. v. Lilly, 258 Cal.App.2d 465, 65 Cal.Rptr. 750.)
The record of the case at bench discloses a substantial reason supporting the trial court's refusal to grant a declaration of the rights of the named plaintiffs. An action for declaratory relief lies only to adjudge a present dispute concerning the rights of the parties. Such an action is not appropriate where 'the situation has not developed which would require the construction of any instrument * * * relied on by the plaintiff.' (Merkley v. Merkley, 12 Cal.2d 543, 547, 86 P.2d 89, 91.) In the case at bench, respondents waived any right they might have to treat [91 Cal.Rptr. 242] the encumbrances placed by the named plaintiffs upon their properties as events actuating the acceleration clause. The named plaintiffs do not claim that they intend to take any further action that might be considered affected by the clause. Thus, there is no present situation alleged which requires construction of the acceleration clause. The dispute asserted by the named plaintiffs is now academic and the trial court properly refused them declaratory relief. It properly accomplished that refusal by dismissing the action without prejudice--a disposition which will not deny relief to the named plaintiffs if at a future time a genuine controversy ripens.
Propriety of Dismissal--Class Action
We find no reversible error in the action of the trial court dismissing the class action for declaratory relief. Where the pleadings establish as a matter of law that any declaration of rights will be adverse to all the contentions asserted by the appellant, a judgment of dismissal need not be reversed on appeal. In that situation, the appellate opinion affirming the correctness of the trial court's determination becomes the law of the case and has the practical effect of a declaratory judgment. (Fairchild v. Bank of America, 192 Cal.App.2d 252, 261-262, 13 Cal.Rptr. 491; see Witkin, California Procedure (1967 Supp.) Pleading, § 456, and cases there cited.)
The only judgment that the trial court could have entered on the portion of the first amended complaint purporting to allege a class action is one totally adverse to the members of the class. We reject appellants' contentions that the first amended complaint alleges facts leading to the conclusion that the acceleration clause is invalid as to the class because: (1) it is an unreasonable restraint on alienation; (2) it is a contract of adhesion; and (3) it is unenforceable fine print.
Restraint of Alienation. Appellants contend that the acceleration clause contained in the trust deeds is void as an illegal restraint upon alienation and use of property. The contention is not new to California courts. Similar acceleration clauses to that before us in the case at bench have been held valid in the context of litigation between a seller of encumbered property and the holder of the encumbrance. (Coast Bank v. Minderhout, 61 Cal.2d 311, 38 Cal.Rptr. 505, 392 P.2d 265; CHERRY V. HOME SAV. & LOAN ASSN., 276 CAL.APP.2D 574, 81 CAL.RPTR. 135; Hellbaum v. Lytton Sav. & Loan Assn., 274 Cal.App.2d 456, 79 Cal.Rptr. 9.)
Appellants rely upon Civ.Code §§ 711, 1671.
Appellants argue that the apparently settled rule validating a clause in a trust deed providing for acceleration of the secured balance in the event of sale is not applicable to the situation where the restraint is upon further encumbrance rather than upon sale. We find no distinction in the two situations. Our Supreme Court states in Coast Bank v. Minderhout, supra, 61 Cal.2d 311, 317, 38 Cal.Rptr. 505, 508: '[P]laintiff validly provided that it might accelerate the due date if the Enrights encumbered of transferred the property.' (Italics added.) The Court of Appeals states in Hellbaum v. Lytton Sav. & Loan Assn., supra, 274 Cal.App.2d 456, 458, 79 Cal.Rptr. 9, 11: It is settled that an agreement not to encumber or transfer property, exacted by a lender to protect his security interest, is not an invalid restraint upon alienation.' (Italics added.)
Thus the cases which have considered the validity of acceleration clauses of the type here involved have not distinguished between acceleration upon sale and acceleration upon encumbrance. There is no basis upon which such a distinction might validly be drawn. Our Supreme Court in Coast Bank validates the restraint there imposed because '[I]t was not unreasonable for plaintiff to condition its continued extension [91 Cal.Rptr. 243] of credit to the Enrights on their retaining their interest in the property that stood as security for the debt.' (61 Cal.2d 311, 317, 38 Cal.Rptr. 505, 508.) An encumbrancer of property reduces rather than retains his interest in it. We conclude, therefore, that the acceleration clause here involved is not an illegal restraint upon alienation.
Contract of Adhesion. Appellant's argument that the first amended complaint entitles the members of the class to a declaration that the acceleration clause is unenforceable as a contract of adhesion is without merit. A contract of adhesion has been defined by our Supreme Court as one 'entered into between parties of unequal bargaining strength, expressed in the language of a standardized contract written by the more powerful bargainer to meet its own needs and offered to the weaker party on a 'take it or leave it' basis.' (Gray v. Zurich Insurance Co., 65 Cal.2d 263, 269, 54 Cal.Rptr. 104, 107, 419 P.2d 168, 171.) The first amended complaint does not allege that the deeds of trust containing the acceleration clause were offered on a take it or leave it basis.
The issue of contract of adhesion in the context in which appellants argue it in the case at bench is particularly inappropriate to a class action. A class action is proper only where there is an ascertainable class and a well--defined community of interest in questions of law and fact affecting the parties to be represented. (Daar v. Yellow Cab Co., 67 Cal.2d 695, 704, 63 Cal.Rptr. 724, 433 P.2d 732.) The conclusion in the first amended complaint that there is such a community conceivably is supported where the issue is the validity of the acceleration clause on its face. It is negatived where the issue is one of a contract of adhesion. Resolution of the latter issue requires that the plaintiff establish factually as to each member of the class the relative bargaining position of the parties and the manner in which the trust deed was offered. Each member of the class, if he is to prevail on the theory, must establish that the trust deed was offered on a 'take it or leave it' basis--that there was not available to him from respondents a trust deed without the acceleration clause perhaps securing a note at a greater rate of interest or calling for more 'points.' Moreover, if it were established that a member of the class in fact agreed to the deed of trust in a fashion constituting it a contract of adhesion, the acceleration clause would not be invalid. Rather, the relationship of borrower and lender would 'inure not alone from the consensual transaction but from the relationship of the parties.' (Gray v. Zurich Insurance Co., supra, 65 Cal.2d 263, 269, 54 Cal.Rptr. 104, 107, 419 P.2d 168, 171.) The effect of the relationship is a matter individual to each borrower and not a matter common to the class.
If the matter were tried as a class action, it would be little more--or more properly less--than a series of individual lawsuits each involving its own particular evidence, factual determinations, findings of fact, and conclusions of law. We conclude, therefore, that appellants' 'class action' purporting to raise the issue of contracts of adhesion is neither supported by the first amended complaint nor a cause which may be brought as a class action.
Fine Print. Appellants argue that the acceleration clause is unenforceable because it is 'fine print.' Here again their contention is not appropriate to a class action. The legal issue is not the size of the print in the contract but whether the parties agreed in fact to its provisions. The determination of that issue involves the same long series of individual factual examinations that renders the question of contracts of adhesion inappropriate to determination in a class suit.
Conclusion
The judgment is affirmed.
WOOD, P. J., and GUSTAFSON, J., concur.