## Facts

- Coast Bank made a series of loans to borrowers Burton and Donald Enright, evidenced by a promissory note for the total indebtedness.
- In a separate written instrument, the Enrights agreed not to transfer or encumber specifically described real property without the bank’s written consent until the debt was paid in full, and authorized the bank to record the instrument.
- The instrument was recorded.
- Before the indebtedness was fully paid, the Enrights conveyed the property to W. J. Minderhout and others without the bank’s consent.
- The purchasers had constructive notice from the recording and admitted actual knowledge of the restriction.
- After the debt remained unpaid, the bank accelerated the obligation and sued to foreclose what it alleged was an equitable mortgage (equitable lien) on the property.
- The trial court overruled defendants’ general demurrer and, after defendants failed to answer, entered a foreclosure judgment and ordered sale of the property; defendants appealed.

## Issues

1. Whether a recorded agreement not to transfer or encumber identified real property without the lender’s consent, intended to secure a debt, creates an equitable mortgage or equitable lien enforceable against later purchasers with notice.
2. Whether such a “no transfer or encumbrance without consent” provision is void as an unlawful restraint on alienation.

## Decision

- The California Supreme Court affirmed the foreclosure judgment.
- The court held the instrument could be enforced as an equitable mortgage (equitable lien) because it sufficiently indicated an intent to make the identified property security for the debt.
- The court held the equitable lien was enforceable against subsequent purchasers who took with notice.
- The court rejected the restraint-on-alienation challenge, concluding the restriction was a reasonable condition serving the lender’s security interest.

## Legal Principles

- An express executory written agreement indicating an intent to make identified property security for a debt creates an equitable lien enforceable against purchasers or encumbrancers with notice.
- A promise to provide a mortgage or deed of trust as security may be specifically enforced in equity by recognition of an equitable mortgage, even if the writing is not a formal legal mortgage.
- Courts focus on substance and the parties’ intent to create security, not the label or conventional form of the instrument.
- A transfer restriction tied to protecting a creditor’s security interest is not necessarily an invalid direct restraint on alienation; it may be valid if reasonable in purpose and scope.

## Conclusion

The court enforced a recorded “no transfer or encumbrance without consent” agreement as an equitable mortgage securing the lender’s debt and held that purchasers with notice took the property subject to the lien; the restriction was treated as a reasonable security-related condition rather than an unlawful restraint on alienation.


Coast Bank v. Minderhout, 61 Cal. 2d 311 (Cal. 1964)