Sacramento Savings & Loan Ass'n v. Superior Court

We granted an alternative writ of mandate in the present case to reconsider a line of California authority upholding prepayment fees on secured real property loans against the challenge such penalties are unreasonable restraints on alienation in light of the California Supreme Court’s decision in Wellenkamp v. Bank of America (1978) 21 Cal.3d 943 [ 148 Cal.Rptr. 379 , 582 P.2d 970 ]. We conclude the rationale expressed in the Wellenkamp decision has riot undermined the reasoning supporting prior cases upholding such prepayment fees. Accordingly, we decline to depart from existing authority and shall issue a peremptory writ.

Real parties in interest (the borrowers) were real estate developers who executed promissory notes secured by deeds of trust in favor of petitioner Sacramento Savings and Loan (the lender). Each note contained a provision for a prepayment penalty as a condition for issuing a deed of reconveyance and full release of the deed of trust prior to the expiration of the note. When the borrowers sought to refinance these notes, lenders demanded payment of the penalties prior to reconveyance and release. Although the borrowers protested the penalties, they…