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

Concurring. — The facts underlying the present proceeding appear to be virtually sui generis. That is, still operative pre-1933 gold-clause leases are apparently most rare and one that expressly grants preapproval for the complete and automatic release of the lessee upon assignment, essentially unique.

I, therefore, concur in the judgment but express no opinion regarding what determination would have been appropriate even in this peculiar instance had the lessee-assignor and the assignee not been fully aware of, and consequently knowingly assumed the risk of, the potential consequences of their transaction prior to its consummation.

A petition for a rehearing was denied March 16, 1995, and respondent’s petition for review by the Supreme Court was denied June 6, 1995. Lucas, C. J., Mosk, J., Baxter, J., and George, J., did not participate therein.

The parties contest the enforceability of a "gold clause," a price-indexing contract clause used to adjust for inflation, which was contained in a 95-year ground lease executed in 1929. Plaintiffs, a small group of family trusts and individuals, are owners and lessors, and defendant is the current tenant and lessee. The parties are successors in interest to the 1929 ground lease of prime real estate in Beverly Hills. The lease provided for an unadjusted monthly base rent of only $2,000.

We hold that although the lease's gold clause was rendered unenforceable by a 1933 federal statute, a tenant's assignment of the lease in 1981 amounted to a new obligation and a novation which rendered the gold clause enforceable under a 1977 federal statute permitting gold clauses. Our conclusion is premised on the law of novation and legislative intent in the 1977 federal legislation which permitted gold clauses in "an obligation issued" ( 31 U.S.C. § 5118 (d)(2)) after the statute's effective date.

Prior to the economic depression of the 1930's, gold clauses were popularly used in contracts as a crude price-indexing mechanism to adjust for inflation. ( Fay Corp. v. BAT…

*428 Opinion

The parties contest the enforceability of a “gold clause,” a price-indexing contract clause used to adjust for inflation, which was contained in a 95-year ground lease executed in 1929. Plaintiffs, a small group of family trusts and individuals, are owners and lessors, and defendant is the current tenant and lessee. The parties are successors in interest to the 1929 ground lease of prime real estate in Beverly Hills. The lease provided for an unadjusted monthly base rent of only $2,000.

We hold that although the lease’s gold clause was rendered unenforceable by a 1933 federal statute, a tenant’s assignment of the lease in 1981 amounted to a new obligation and a novation which rendered the gold clause enforceable under a 1977 federal statute permitting gold clauses. Our conclusion is premised on the law of novation and legislative intent in the 1977 federal legislation which permitted gold clauses in “an obligation issued” ( 31 U.S.C. § 5118 (d)(2)) after the statute’s effective date.

Background

Prior to the economic depression of the 1930’s, gold clauses were popularly used in contracts as a crude price-indexing mechanism to adjust for inflation. (Fay Corp. v. BAT…