MEDOVOI v. First Charter Financial Corporation, Defendant and Respondent. (1979)

INTRODUCTION

Plaintiffs Jorge Yoram Medovoi and his wife Cepora Medovoi (hereinafter referred to collectively as “Medovoi”) appealed from a judgment in favor of American Savings and Loan Association (hereinafter referred to as “American”) and First Charter Financial Corporation (hereinafter referred to as “First Charter”) in this action for damages for wrongful foreclosure. American appealed from that portion of the judgment denying it recovery on its cross-complaint for fraud and misrepresentation against Medovoi.

This court filed its original opinion certified for publication on September 26, 1976. The California Supreme Court granted appellant's petition for hearing in the matter on January 5, 1977. The action was on November 20, 1978, transferred back to this Court of Appeal for reconsideration in light of Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 148 Cal.Rptr. 379, 582 P.2d 970, which was published on August 25, 1978.

American in oral argument urges that Wellenkamp is not retroactively applicable to the case at bench in view of the language at pages 953-954, 148 Cal.Rptr. at page 386, 582 P.2d at page 977 which states: “It is urged that. our decision should be given a purely prospective effect, given the reliance on existing laws by lenders when they entered into long-term real estate loan contracts. ‘It is the general rule that a decision of a court of supreme jurisdiction overruling a former decision is retrospective in its operation ․’ (County of Los Angeles v. Faus (1957) 48 Cal.2d 672, 680-681, 312 P.2d 680.) We see no reason to depart from this rule in this case merely because of the lenders' expectations that they would derive economic benefits from enforcement of the due-on clause. (See Texas Co. v. County of Los Angeles (1959) 52 Cal.2d 55, 338 P.2d 440.) However, given the importance of the stability of real estate titles and the interest in preserving completed real estate financing arrangements, we hold that this decision shall not apply when the lender, prior to the date that this decision becomes final, has either enforced the due-on clause, resulting in sale of the subject property by foreclosure or in discharge of the accelerated debt, or when the lender has waived enforcement of the due-on clause in return for an agreement with the new buyer modifying the existing financing.”

While it may well be the circumstances of the instant case could be construed to render Wellenkamp inapplicable, confusion has been injected by reason of the order from the Supreme Court that retransferred the case to this court which included the sentence: “The disposition of this case is to be governed by the substantive principles announced in our opinion in Wellenkamp.”

It will be unnecessary to address American's contention on the issue of retroactivity of Wellenkamp since upon reconsideration in light of the circumstances of the instant case we conclude that, in general, the conclusions reached in our original opinion filed September 26, 1976, remain valid. We have, accordingly, incorporated only those modifications deemed necessary to clarify our position and explain why the principle of Wellenkamp is inapplicable here. The entire opinion, as modified, follows:

FACTS

In the spring of 1968 Medovoi purchased certain income producing property consisting of a six-unit apartment complex situated in North Hollywood upon which foreclosure proceedings had been instituted by Master, holder of the second trust deed. Medovoi took title subject to but refused to assume the first trust deed obligation and as a consequence American accelerated the principal balance under its due-on-sale clause and began to collect rents. Medovoi defaulted and abandoned the property, Master once again foreclosed and the property was resold. Medovoi then filed this action against American for wrongful foreclosure.

The record discloses the following series of events leading up to the present litigation. On August 30, 1963, Mr. and Mrs. Leonard Davis, owners of the six-unit apartment house which is the subject of this action, conveyed the property to Mr. and Mrs. Katz. In connection with their acquisition of the property, the Katzes executed a promissory note in the face amount of $43,750 at 6.6 percent interest per annum which was secured by a first deed of trust in favor of Mutual Savings and Loan Association of Alhambra in which the trustee was First Charter. American thereafter acquired Mutual Savings and Loan Association by merger and succeeded to all rights and obligations thereof.

The first deed of trust executed by the Katzes contained a due-on-sale clause which expressly permitted the beneficiary to “accelerate” or call due and payable the entire remaining principal balance secured thereby should the property subject to the security interest be sold or otherwise transferred without the prior written consent of the beneficiary. Through a series of conveyances title to the property thereafter passed back to the Davises, thence to Leonard Davis Enterprises, Incorporated, and then to Martin W. and Carol R. Teague, who assumed the note and first trust deed. On September 14, 1964, Carol R. Teague became sole owner of record title and she transferred the property to James F. Witter who assumed the first trust deed obligation and also assumed or took subject to a note secured by a second trust deed which was owned by Master.

When Witter early in 1968 defaulted on the second trust deed obligation, Master instituted foreclosure proceedings and arranged to make payments to American on the first trust deed. Prior to the foreclosure by Master, American had consented to the assumption of the first trust deed by each of the holders of record title to the property on the payment of a nominal title transfer fee (which did not exceed $25) and without any increase in interest rate. However, sometime after Witter acquired the property and prior to Master's foreclosure thereon, American's policy with respect to the assumption of existing first trust deed obligations changed. As a result of increasing interest rates, American began to require a transferee to assume the obligation at the then-prevailing interest rate and to pay an additional assumption fee. An exception to this policy was customarily made by American when the transferee was the holder of a junior deed of trust who acquired title to the property by foreclosure. Such a transferee took title subject to American's encumbrance for a limited period merely to dispose of the property and hence was not required to pay an assumption fee, higher interest or any other charge so long as the obligations on the first trust deed were maintained without delinquency. Accordingly, when Master instituted foreclosure proceedings on the second deed of trust, Master was permitted by American to bring the first trust deed loan current and to maintain monthly payments thereon to protect its security interest without entering an assumption agreement.

Master completed foreclosure and acquired title by trustee's deed on May 14, 1968, obtaining from Witter a deed in lieu of foreclosure, but did not then or later notify American that foreclosure had been completed. Upon acquiring title, Master entered into an agreement with Stephen P. Gluck, doing business as Homeland Realty, authorizing the broker to sell the apartment building on certain terms and conditions, including the condition that the purchaser should assume the first trust deed obligation.

Medovoi offered to purchase the property through Gluck. Under the terms of the deposit receipt and escrow instructions executed by Medovoi, it was made known to them that American might require them to assume the note and first trust deed at a higher interest rate. In fact, Gluck informed them that American might terminate the obligation upon learning the terms of the purchase which required Gluck to take a third trust deed and Master to continue to carry a second trust deed on the property. Therefore, at the suggestion of Gluck and Master, Medovoi entered an agreement with Master that Medovoi should pay Master which would in turn convey payments on the first trust deed to American. One of the reasons for this agreement was to prevent American from learning of the transfer of title to Medovoi in order to circumvent the assumption requirement.

Master did not inform American that it had acquired title to the property from Witter, and it did not respond to written requests relating to the status of title which American sent in May, June, July, and August 1968. From February 1968 through March 1969 American accepted checks sent by Master in payment on the first trust deed in the belief that Master as holder of the second deed of trust was continuing to make interim payments during foreclosure proceedings. However, on September 23, 1968, American received notice of an assignment of insurance policy on the property in favor of Medovoi. American rejected the policy endorsement and informed Medovoi that the property could not be transferred without American's consent to an assumption of first trust deed. Medovoi did not respond and the insurance company led American to believe their name on the policy was an error.

On March 10, 1969, American finally contacted Title Insurance and Trust Company and learned for the first time that Master had completed foreclosure and transferred the property to Medovoi. It thereupon sent an assumption application form to Medovoi. On March 18, 1969, Medovoi advised American that they were willing to assume the loan. Thereafter, however, they attempted to negotiate to keep the loan “on its present terms” with the declared intent to sell the property as soon as possible to another buyer who would assume the loan. Meanwhile, Medovoi completed and returned the loan application sent to them by American. American by letter of April 29, 1969, advised them of the terms and conditions under which it would allow them to assume that obligation and enclosed a form of assumption agreement providing for 8.25 percent interest reflecting then-prevailing rates of interest. Medovoi neither accepted the terms of the assumption proposed by American nor returned the assumption agreement.

American continued to accept monthly checks from Master during April, May and June 1969 in reliance on Medovoi's declared intent to assume the note and first trust deed. However, since Medovoi procrastinated, American by letter on June 10, 1969, notified both Witter as the last assuming owner and Medovoi as holders of record title that it elected to accelerate the balance due on its first deed of trust pursuant to the due-on-sale clause therein contained. American thereafter refused to accept any further monthly payments and rejected two tenders by Master of the $296 monthly payment due on July 1, 1969, on grounds that this amount was insufficient to constitute payment of the full principal balance which had been declared due and payable.

When the full principal balance remained unpaid, American, on or about July 8, 1969, caused a notice of default to be recorded by First Charter and began collecting rents pursuant to the assignment of rents contained in the first trust deed. Medovoi thereupon instituted the present action but they were unsuccessful in obtaining a preliminary injunction to restrain American from pursuing that remedy, and American continued to collect rents. Thereafter, Medovoi became unable to maintain payments on the first and junior encumbrances. On or about August 1969 Medovoi abandoned the property and defaulted on the second and third deeds of trust held by Master and Gluck, respectively. By agreement with American, Master completed foreclosure upon the property under its second trust deed in February 1970. Following the foreclosure, the property was sold to Mr. and Mrs. Fox on April 7, 1970. That couple assumed the note and deed of trust in favor of American, agreeing to pay an assumption fee, impounds for insurance and taxes, and an interest rate increased to 8.5 percent per annum. The present litigation was continued as an action for wrongful foreclosure; subsequently American filed a cross-complaint against Medovoi for fraud.

ISSUES

Plaintiffs-appellants Medovoi contend (1) that American, by accepting payments with knowledge of the transfer of ownership to Medovoi, waived any rights it might have had to the remedies of acceleration and foreclosure under the due-on-sale clause in its first trust deed; (2) that American's enforcement of its due-on-sale clause constituted an unreasonable restraint on alienation (Civ.Code, § 711); and (3) that in any event American was improperly awarded costs.

Defendant-respondent and cross-complainant American contends that Medovoi's failure to inform American of their purchase of the property constituted intentional fraud for which American is entitled to damages.

DISCUSSION

I

Medovoi contends that American's conduct constituted a waiver, express or implied, of its right to enforce the due-on-sale clause by acceleration and foreclosure. That issue, however, was fully litigated and the trial court found on substantial evidence that American did not waive the due-on-sale clause in its first trust deed. Our review, therefore, is limited to a focus upon that evidence which supports the trial court's determination. It is not the function of the appellate court to weigh favorable evidence against infavorable. (Stevens v. Parke, Davis & Co. (1973) 9 Cal.3d 51, 64, 107 Cal.Rptr. 45, 507 P.2d 653.) All conflicts must be resolved in favor of American on this issue. (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 926, 101 Cal.Rptr. 568, 496 P.2d 480.)

It is the well established law of California that waiver rests upon intent. “‘Waiver is the intentional relinquishment of a known right after knowledge of the facts.’ [Citations.] It implies that intentional forbearance to enforce a right [citations], and, necessarily, therefore, assumes the existence of an opportunity for choice between the relinquishment and the enforcement of the right.” (Wienke v. Smith (1918) 179 Cal. 220, 226, 176 P. 42, 44.) A waiver requires a clear showing of intent and doubtful cases will be decided against waiver (Church v. Public Utilities Com. (1958) 51 Cal.2d 399, 401, 333 P.2d 321). Moreover, constructive knowledge is generally insufficient to support a finding that waiver occurred. In landlord-tenant cases acceptance of payments due, such as rental payments, is insufficient to constitute waiver unless the party accepting payment has actual knowledge of the assignment or sublease of the premises. (German-American Sav. Bank v. Gollmer (1909) 155 Cal. 683, 102 P. 932; Weisman v. Clark (1965) 232 Cal.App.2d 764, 768-769, 43 Cal.Rptr. 108.)

The evidence discloses that all payments on the first trust deed between February 1968 and March 10, 1969, were made to American by Master on Master's check. American accepted those payments in the belief that they were being made by a foreclosing second trust deed holder. American did not know that those payments were being made on behalf of Medovoi. On March 10, 1969, American first learned that Medovoi held record title. American thereafter advised Medovoi that they would be required to enter into a formal assumption or, in the alternative, American would accelerate the principal balance. American accepted monthly checks from Master for the months of April, May and June 1969 because it was advised by Medovoi that they wished to assume the note and first trust deed. The trial court found that American in so doing did not intend to waive its right to accelerate the principal balance but intended merely to provide for Medovoi a period of time for negotiation of the terms of assumption.

The trial court found further that during the period between April and June 1969 American at all times intended to accelerate if Medovoi failed to assume. This finding is supported by American's subsequent conduct. Although Medovoi expressed dissatisfaction with the terms of the assumption agreement proposed by American, negotiation relating to alternative terms continued until after the beginning of June when the final payment was accepted from Master. Thereafter it became clear to American that there was no ground for mutual agreement on the terms of assumption. As a result, American notified Medovoi and Witter by letter dated June 10, 1969, that it was accelerating the principal balance on the note as a consequence of the unconsented transfer of the property. American thereafter refused tender by Master of the July payment on grounds that the amount was insufficient to pay the full principal balance then due by virtue of the exercise of its option to accelerate.

When the full principal balance remained unpaid, American on or about July 8, 1969, initiated proceedings to perfect foreclosure of the property, and in August Medovoi abandoned the premises. The evidence amply supports the trial court's finding that American at all times intended to retain its rights under the due-on-sale clause.

The cases relied upon by Medovoi are inapposite involving as they do either lease assignments or acceptance of partial or late payment on loans after default. The cases in which the landlord was estopped to enforce a forfeiture by having accepted rental payments after the breach are inapplicable on several grounds. One prominent reason for their inapplicability is the fact that estoppel was imposed because the landlord accepting rent after breach of the lease condition had full knowledge of the facts (Miller v. Reidy (1927) 85 Cal.App. 757, 260 P. 358; Kern Sunset Oil Co. v. Good Roads Oil Co. (1931) 214 Cal. 435, 6 P.2d 71) or the facts otherwise support a finding that a waiver was intended (Linnard v. Sonnenschein (1928) 94 Cal.App. 729, 272 P. 315). In addition, these cases involved forfeitures, which are traditionally regarded with disfavor. “Mindful that the law provides other remedies more consonant with justice, courts avoid enforcing covenants for forfeiture wherever possible.” (Miller v. Reidy, supra, 85 Cal.App. at p. 761, 260 P. at p. 360.) The present case does not deal with a forfeiture. (See, e. g., R. G. Hamilton Corp., Ltd. v. Corum (1933) 218 Cal. 92, 97, 21 P.2d 413; Hunt v. Smyth (1972) 25 Cal.App.3d 807, 831, 101 Cal.Rptr. 4.)

Other cases relating to estoppel of the lender to compel repayment of the full balance by acceleration or foreclosure after acceptance of late or partial payments have no applicability. The beneficiary under a trust deed may be estopped to foreclose by having previously waived defaults occasioned by late payment and then concealing the recording of notice of default (Altman v. McCollum (1951) 107 Cal.App.2d Supp. 847, 236 P.2d 914). Similarly, a creditor is estopped to enforce payment by a guarantor where an extension of time was granted the principal obligor by acceptance of payments after formal notice of default since the obligations of surety and principal are coextensive (Mortgage Finance Corp. v. Howard (1962) 210 Cal.App.2d 569, 26 Cal.Rptr. 917). In the present case American obtained no unfair advantage and at all times after it had knowledge of grounds for foreclosure it asserted its intention to accelerate, pending a reasonable period for assumption of the loan.

Although Medovoi further claims that American's consent to the transfer may be implied from its prior conduct, the facts do not support this contention. Medovoi relies upon American's presumed consent to the giving of a further encumbrance on the property by Witter to Teague. Even if the evidence clearly established the existence of an express consent by American to the transaction, no waiver of the right to accelerate on a further transfer of the property could be implied therefrom. Medovoi cannot take advantage of any earlier waiver by American of its right to accelerate the debt since such provisions are enforceable at American's option, depending upon its evaluation of the transferee and the surrounding circumstances. Moreover, the due-on-sale clause expressly provides that consent by the beneficiary to one transfer shall not be deemed to be a waiver of the right to require its consent to future or successive transfers of the property.

II

The question we must now determine is whether the application of its due-on-sale clause by American, under the peculiar facts and circumstances of this case, constitutes an unreasonable restraint on alienation prohibited by the California Supreme Court in Wellenkamp v. Bank of America, supra, 21 Cal.3d 943, 148 Cal.Rptr. 379, 582 P.2d 970.

The majority of the Court in that case (Clark, J., dis.) held “that a due-on clause contained in a promissory note or deed of trust cannot be enforced upon the occurrence of an outright sale unless the lender can demonstrate that enforcement is reasonably necessary to protect against impairment of its security or the risk of default․” (Id., at p. 953, 148 Cal.Rptr. at p. 385, 582 P.2d at p. 976, fns. omitted.) In reaching this conclusion, the Court found it necessary to disapprove well established law represented by Hellbaum v. Lytton Sav. & Loan Assn. (1969) 274 Cal.App.2d 456, 79 Cal.Rptr. 9, and Cherry v. Home Sav. & Loan Assn. (1969) 276 Cal.App.2d 574, 81 Cal.Rptr. 135, and to overrule its earlier decision in Coast Bank v. Minderhout (1964) 61 Cal.2d 311, 38 Cal.Rptr. 505, 392 P.2d 265, to the extent inconsistent with its statements in Wellenkamp. It was upon these prior decisions we previously relied for the principle that due-on-sale clauses in trust deeds are acceptable and that their enforceability by acceleration is recognized on the basis of sound economics. The Court also disapproved its more recent decision in La Sala v. American Sav. and Loan Assn. (1971) 5 Cal.3d 864, 97 Cal.Rptr. 849, 489 P.2d 1113, which limited the enforceability of due-on-encumbrance provisions while distinguishing and impliedly approving due-on-sale clauses. The Court in Wellenkamp defined the term “outright sale” as employed in its decision to refer to “any sale by the trustor of property wherein legal title (and usually possession) is transferred.” (Wellenkamp v. Bank of America, supra, 21 Cal.3d 943, 950, 148 Cal.Rptr. 379, 383, 582 P.2d 970, 974.)

American contends that, were Wellenkamp retroactively applicable, it would not prohibit the conduct of American under the facts of the present case. We agree. Here there was first an involuntary transfer of a non-owner-occupied multiple residential apartment building by Witter to Master, who became a non-assuming transferee, and thereafter a voluntary transfer or sale by Master to Medovoi. American's only trustor was Witter; since Master never assumed the first deed it never became a trustor, and the eventual transfer to Medovoi was, in effect, an involuntary transfer from Witter. Master held legal title merely as a conduit to facilitate transfer.

The apparent rationale of Wellenkamp is that if automatic enforcement of due-on-sale clauses were permitted unreasonable restraints on alienation would result. The option of the lender to exercise its rights under the due-on-sale clause in times of inflation or high interest rates or to waive those rights in return for an assumption of the existing loan upon payment of a fee and at higher rates was felt by the Wellenkamp Court to constitute an unreasonable restraint on alienation. (Civ.Code, § 711.) Alienation is a term applied almost exclusively to voluntary transfers. (Black's Law Dict. (4th ed. 1968) p. 96, col. 1.) We construe the Wellenkamp decision to apply merely to those property transfers where an owner-trustor of a single family residence engages in a voluntary transfer of his interest in the secured property to a prospective purchaser. This interpretation is consistent with the prior decisions of the California Supreme Court holding that an owner-trustor could be permitted to incur a junior encumbrance (La Sala v. American Sav. and Loan Assn., supra, 5 Cal.3d 864, 97 Cal.Rptr. 849, 489 P.2d 1113) or to transfer the secured property by way of installment land contract (Tucker v. Lassen Sav. & Loan Assn. (1974) 12 Cal.3d 629, 116 Cal.Rptr. 633, 526 P.2d 1169) without having the due-on clause automatically applied by the lender.

Here the transaction giving rise to the automatic application of its due-on-sale clause was the involuntary transfer caused by foreclosure by the junior lien holder (Master) against its owner-trustor (Witter). As noted, we construe Wellenkamp to apply to a voluntary outright sale by an owner-occupier of a single family residence. We conclude it does not apply to an involuntary transfer or to a transfer by a non-assuming transferee (Master) who passed title to Medovoi but had no contractual relationship with the lender (American) or to commercial property such as a multi-unit apartment building.

The above conclusion is supported by the fact that, traditionally, when secured real property is transferred by sale from one who does not assume the obligations of the note or deed of trust, the property itself becomes the obligor, and the trustor remains liable to the beneficiary (lender) as surety. Since there is no contractual relationship between it and the non-assuming transferee, the beneficiary if there is a default may pursue first the property and, if there is a deficiency, may pursue the original trustor (surety) but may not seek to recover the deficiency from the non-assuming transferee who has no personal liability. If Wellenkamp applied under the circumstances present there, American would not have been entitled to automatically enforce its due-on-sale clause had Witter as owner-trustor voluntarily transferred the apartment building as an “outright sale” but would have had the right to automatic enforcement in the event of a non-assuming transferee (Master) transferring the property since the right to be free of any unreasonable restraint on alienation accrues to the owner-trustor. Civil Code section 711 does not protect the transfer from Master to Medovoi because Master did not become a trustor by assuming the obligation of American's first trust deed. In this situation we conclude that the rules enunciated in La Sala v. American Sav. and Loan Assn., supra, 5 Cal.3d 864, 97 Cal.Rptr. 849, 489 P.2d 1113, and in Tucker v. Lassen Sav. & Loan Assn., supra, 12 Cal.3d 629, 116 Cal.Rptr. 633, 526 P.2d 1169, are applicable and American is entitled to exercise its due-on-sale clause.

Finally, we construe the applicability of Wellenkamp to be expressly limited to loans made by institutional lenders (Wellenkamp v. Bank of America, supra, 21 Cal.3d 943, 952, fn. 9, 148 Cal.Rptr. 379, 582 P.2d 970) where a loan is held on the type of real property therein involved, e. g., a single family residence. The policy appears to be the protection of homeowner's equity, and the Court points out that in times when the money market is tight automatic enforcement of due-on-sale clauses would inhibit transfers of such property since an owner might be under pressure to lower his price and thus lose some of the valuable equity in his home, or might refuse to sell rather than do so. The Legislature has frequently and reasonably singled out the owner-occupied home or multiple dwelling of four or fewer units for special protection. (See, e. g., Code Civ.Proc., § 580b; Civ.Code, §§ 2924.5, 2924.6; Health & Saf.Code, § 50092.) When the quantum of restraint is balanced against the justification for permitting it, it is apparent that the quantum of the restraint which the court believes the due-on-sale clause enforcement imposed on owner-occupied single family residence transfers is not similarly felt by the owner of multiple residence or commercial property of investment character, who is better able to make decisions relating to its sale on the basis of economic rather than personal circumstances and can permit the availability of beneficial lending environment to dictate the time of an acquisition or sale. The factors influencing what is basically a business decision differ substantially from those involved in an outright sale of a single family home, and the automatic exercise of a contractual due-on-sale clause does not constitute an unreasonable restraint.

Accordingly, we conclude that where, as in the case at bench, there was an involuntary transfer of a multi-unit apartment property to a non-assuming transferee, who took legal title merely for purposes of sale to a transferee who would assume the loan, where no notice of the transfer was given and the transferee thereafter refused to assume, a foreclosure thereupon was instituted and the purchasers abandoned the property that Wellenkamp is inapplicable.

III

American in its cross-appeal contends that it should have had recovery on its cross-complaint in which it alleged that it was damaged by the negligent or fraudulent concealment of the transfer by Medovoi. The trial court found that Medovoi never assumed or became parties to the deed of trust; nonetheless, the Medovoi title was recorded and became a matter of public record. The trial court further found that Medovoi knew that American might accelerate the principal balance or demand an assumption fee and increased interest rate if it learned of the transfer to Medovoi; that Medovoi did not inform American of the purchase; that Medovoi intentionally refused to respond to an inquiry by American in September of 1968 concerning the status of title; and that Medovoi concurred in having the monthly payment on the American trust deed made through Master. The facts support its further determination that had Medovoi promptly informed American, the interest rate demanded by American would have been lower because the prevailing interest rate in July 1968 was lower than in March and April 1969.

Liability for negligent or intentional misrepresentation may be imposed only when the evidence clearly supports a finding of the presence of each of the elements of the action. These are: (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) resulting damage. (Harazim v. Lynam (1968) 267 Cal.App.2d 127, 130, 72 Cal.Rptr. 670.)

Assuming all of the foregoing facts and circumstances are true, there is no authority to impose upon Medovoi, as transferees or vendees of the property, any affirmative duty to inform American of the purchase and, accordingly, Medovoi could not breach such a duty by concealment. Substantial evidence supports the trial court's further determination that, even assuming misrepresentation by Medovoi, the purchasers did not entertain the requisite intent to induce American to rely to its detriment. Medovoi's conduct was passive; it was American that initiated inquiry as to status of title and failed to follow up with further investigation.

Finally “[a]ctionable deceit occurs if a material and knowingly false representation, made with intent to induce action, causes reasonable and detrimental reliance.” (Block v. Tobin (1975) 45 Cal.App.3d 214, 219, 119 Cal.Rptr. 288, 290.) There is a lack of clear and convincing evidence to support the inference that American's reliance upon Medovoi's denial of ownership was either justified or detrimental. It was incumbent upon American to show not only actual reliance, but also that it was reasonable for the company to accept the Medovoi denial without independent inquiry. There is little justification for reliance under the circumstances of this case since American was in a business intimately involved with real property transactions and had both the knowledge and access to public records which would disclose the status of title. Although the trial was bifurcated and the issue of damages was not litigated, it is clear that only potential detriment flowed from the delay in opening negotiations relating to assumption, and damages were speculative. One net result was that American in 1969 received a higher interest rate upon assumption by the new purchaser than it might have obtained in 1968.

IV

Medovoi contends that, in any event, American and First Charter were improperly awarded costs over Medovoi's objection that no costs should be awarded because neither side prevailed on its affirmative pleadings. The court awarded costs to defendants-respondents and cross-appellants on the basis that had the Medovoi complaint not been failed, American would not have filed a cross-complaint. There was no impropriety in the trial court's award.

This issue was determined similarly in a case in which plaintiffs instituted an action for damages sustained in an automobile accident and defendant cross-complained for damages arising out of the same accident. (Gerstein v. Smirl (1945) 70 Cal.App.2d 238, 160 P.2d 585.) Both parties were denied relief and the trial court's award of costs to defendant was affirmed on appeal on the ground that while defendant might never have litigated her claim, once plaintiff instituted the action she had no alternative but to set up her counterclaim for damages allegedly sustained in the same transaction or be foreclosed therefrom altogether. The court in considering the issue of costs made the following observation: “As we read Section 1032, it is intended thereby that, if plaintiff in an action fails to make out his case, the defendant is entitled to judgment and must be regarded as the prevailing party. In other words, a party who defeats an action by a counterclaim is as much entitled to his costs as is a party who defeats it by any other means. In an action such as the instant one for damages, the ‘net result’ of a judgment requiring defendant to pay nothing to the plaintiff is favorable to the former. Although defendant did not recover on her cross-complaint, she was the prevailing party in the court below because plaintiff was denied recovery against her․” (Gerstein v. Smirl, supra, 70 Cal.App.2d at pp. 240-241, 160 P.2d at pp. 586-587.)

DISPOSITION

The judgment and order are affirmed.¹ Each party to bear their or its own costs on appeal.

While neither agreeing nor disagreeing with its footnote 1, I concur in the opinion of Justice Hanson. My purpose here is to express what seems to be the unspoken rationale of the key Supreme Court decisions in Coast Bank, La Sala, Tucker, and Wellenkamp. My theory is that illumination of the rationale may disclose the inherent lack of impact of this, or any other Court of Appeal, opinion in the area we here consider.

As I analyze the ovular¹ case of Coast Bank v. Minderhout (1964) 61 Cal.2d 311, 38 Cal.Rptr. 505, 392 P.2d 265, Justice Traynor, in speaking for a unanimous court, concluded that a real estate lender's interest in recapturing a profit accruing from financing proved by future fluctuations of interest rates to be favorable was such as to render any restraint on alienation incident to the recapture by acceleration reasonable.

It is hard to fault Justice Traynor's conclusion. California real property competes for financing in a national market. As conditions are legislatively or judicially imposed which render a California property loan less desirable than one made elsewhere, funds that would otherwise be available to finance California transactions will tend to flow to other states. As the supply of real property financing in California may be decreased by that flow, California interest rates must inevitably rise. As the outflow of available financing causes, as it inevitable must, a decrease in construction, prices of improved real property will rise. Thus, if one focuses on the ultimate effect of forcing the lender to allow his borrower to profit from a change in interest rates, he is struck by the need to balance the borrower's interest in making a windfall profit which he has contracted away² against a public interest in lower cost improved property and property loans.

In La Sala v. American Sav. and Loan (1971) 5 Cal.3d 864, 97 Cal.Rptr. 849, 489 P.2d 1113 and Tucker v. Lassen Sav. & Loan Assn. (1974) 12 Cal.3d 629, 116 Cal.Rptr. 633, 526 P.2d 1169, our Supreme Court departed only slightly from the rationale underlying Coast Bank. In the La Sala situation, denial of acceleration for a junior encumbrance did not create a windfall profit to the borrower upon a sale. It could not have a substantial effect upon the ability of the Californians to compete for financing for real property acquisition and improvement in a national market. In the Tucker situation, denial of acceleration upon sale of property originally purchased on a conditional sale contract while granting the windfall to the borrower, again, did not adversely affect the ability of California property to compete nationally for financing.

Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 148 Cal.Rptr. 379, 582 P.2d 970, however, represents a drastic switch from the direction of the Coast Bank court. The Wellenkamp principle holds in silent effect that neither the contractually agreed right to profit from a change in interest rates nor the public interest in the ability of Californians to compete for property loans in a national market is sufficient to render reasonable whatever restraint upon alienation may be present.

Wellenkamp thus effectively says that a contractual provision which denies to the borrower profit on financing which subsequent events render highly advantageous is contrary to public policy. What we are called upon to do here is to predict the limits which the Supreme Court will place upon that declaration. I, along with my colleagues, guess that those limits are as specified in the opinion of Justice Hanson. I emphasize, however, that in my judgment the limits we have set are no more than guesswork. Any lender would be unwise indeed to rely upon any Court of Appeal opinion in this area of the law.

FOOTNOTES

1.  While I acknowledge that the Wellenkamp decision is binding where applicable, I feel compelled to make the following observations and comments:I agree with my colleague Justice Thompson in his concurring opinion in the instant case which implicitly concludes that the Wellenkamp principle may well have an effect opposite from that apparently intended. Although I do not profess to be an economist, it would appear that the Wellenkamp decision is shortsighted in that, as Justice Thompson points out, “California real property competes for financing in a national market.” Thus, the decision may adversely affect all of those Californians with limited fixed incomes who desire to purchase new or unencumbered homes by tending to either dry up financing available or saddle them with higher interest rates on some kind of a graduating scale which in an inflationary spiral could be devastating.I agree with Justice Clark in his dissenting opinion in the Wellenkamp case that a due-on-sale clause does not unreasonably restrict the outright sale of property and with his conclusion that the majority opinion errs in concluding there is little or no justification for the clause.Finally, I also concur with Justice Clark in his dissent when he concludes that the majority in Wellenkamp erred “in failing to recognize that lenders and borrowers, owners and prospective owners, should be allowed to run their own affairs with minimal governmental intrusion—particularly from this branch” (21 Cal.3d at p. 958, 148 Cal.Rptr. at p. 388, 582 P.2d at p. 980) of government.Intrusions by any branch of government which inject socialization into the internal workings of our free market banking system tend to kill the goose that lays the golden egg. The golden egg is human welfare. The goose has been proven to be the free market or private enterprise system which has afforded Americans the highest standard of living of any system in the history of the world. Here, the Wellenkamp decision clearly tinkers in the financial area of our economic lives and is another example of bureaucratic chipping away at the free market-private enterprise system.If the “rules of the game” in respect to home financing are to be changed as they pertain to “due-on-sale” clauses, such changes should certainly not come from the judiciary but should emanate from the legislative branch of government. Not only does the State Legislature reflect the will of the people, but it is better equipped to investigate, collect statistics, conduct hearings and consider and evaluate the opinions of financial experts, members of the financial community and the public at large in order to more accurately assess the short-term and long-term impact upon the public and our financial institutions.Moreover, the fact that the California Legislature has not legislated in respect to the “due-on-sale” clause does not justify judicial legislation. “A casus omissus does not justify judicial legislation.” (Ebert v. Poston (1925) 266 U.S. 548, 554, 45 S.Ct. 188, 190, 69 L.Ed. 435.)Justice Felix Frankfurter in The Commerce Clause (Chapel Hill: University of North Carolina Press 1937) at pages 95-96 said: “Like Taney before him and Holmes in our own time, Waite illustrates that judicial self-limitation may be the most significant aspect of judicial action in the American constitutional scheme. Such self-limitation is not abnegation; it is the expression of an energizing philosophy of the distribution of governmental powers. For a court to hold that decision does not belong to it, is merely to recognize that a problem calls for the exercise of initiative and experimentation possessed only by political processes, and should not be subjected to the confined procedure of a lawsuit and the uncreative resources of judicial review.”

1.  The feminists among us are entitled to a word other than “seminal.”

2.  Legal doctrine limiting the effect of contracts of adhesion and imposing proscriptions on restraint of trade are, of course, necessary to preserve freedom of contract in fact.

HANSON, Associate Justice.

THOMPSON, Associate Justice (concurring).LILLIE, Acting P. J., concurs. Hearing denied; BIRD, C. J., and MOSK, J., dissenting.