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Vanderbilt Law Review

First Page

357

Abstract

This Note suggests that courts have failed to articulate properly the relation of the due-on-sale clause to the legal doctrines under which it has been challenged. In particular, courts that have considered the clauses to be restraints on alienation have concentrated on the impact of enforcement or nonenforcement on the borrower, and have ignored almost completely the social interest in the free transferability of land, which has been the traditional rationale for the rule against restraints. Likewise, courts that have considered due-on-sale clauses under equitable principles frequently have failed to articulate whether the inequity arises from an attempt by one party to seek more than was contained in the contract, or because the due-on-sale clause is too harsh a term to be forced upon a weaker party. By failing to isolate the social policy goals that those doctrines seek to advance, courts have produced opinions in which different lines of argument are confused, with the result that these opinions are left vulnerable to the criticism that they are the instruments of result oriented "judicial legislation." Additionally,this confusion of argument has resulted in a tendency to approach the due-on-sale clause issue as a search for a single rule, and thus has limited a jurisdiction's flexibility to reach a contrary result in a case whose facts may warrant it. By seeking a clear definition of the policy goals that are implicated in the due-on-sale clause controversy, this Note suggests an appropriate analytical framework that a court may use to approach a due-on-sale clause issue in cases of first impression. Additionally, the Note considers the related issue of the due-on-encumbrance clause in terms of the suggested analysis and concludes that because of the different considerations which apply to the due-on-encumbrance clause, a judicial decision that due-on-sale clauses warrant automatic enforcement does not compel the same result with respect to due-on-encumbrance clauses.

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