## Facts

- Gutzi Associates sold a commercial building to R. Bruce and Jean Switzer for $367,000.
- The property was already encumbered by a deed of trust securing a promissory note payable to Safeco Life Insurance Company (Safeco note), which prohibited prepayment of principal for the first five years.
- The parties executed an all-inclusive promissory note and deed of trust (wraparound/AITD) in the principal amount of $267,000 at 14% interest, payable monthly over 25 years.
- The AITD required three additional lump-sum principal-reduction payments of $15,000 each on specified dates in 1982 and 1983.
- The AITD contained (1) a typewritten “lock-in” term stating there was no prepayment option except the three specified principal-reduction payments, and (2) printed form language addressing prepayment by reference to the underlying Safeco note.
- In 1987, the Switzers prepaid the Safeco note in full and asserted the remaining balance on the AITD should be substantially reduced and payable off over a short period.
- Gutzi disputed any right to prepay the AITD beyond the specified lump-sum reductions and sought a declaration of the parties’ rights.

## Issues

1. Whether the AITD’s typewritten no-prepayment provision was overridden or made ambiguous by printed prepayment language tied to the underlying Safeco note.
2. Whether enforcing the no-prepayment (lock-in) provision constituted an unreasonable restraint on alienation under California Civil Code § 711.

## Decision

- The Court of Appeal reversed the judgment for the Switzers and directed entry of judgment consistent with its interpretation.
- The typewritten lock-in provision was enforceable and not superseded by the printed prepayment language.
- Civil Code § 1654 (construction against the drafter) did not apply because the provisions could be harmonized and no true ambiguity required that canon.
- The Switzers’ unilateral prepayment of the Safeco note did not change their separate contractual obligations under the AITD.
- Enforcing the lock-in provision was not an unreasonable restraint on alienation under Civil Code § 711 on the record presented.

## Legal Principles

- Contract provisions should be interpreted to give effect to all terms where reasonably possible; apparent tension between printed and typewritten clauses does not require a finding of ambiguity if a consistent reading exists.
- A specific typewritten limitation on prepayment in a promissory note may control over broader printed form language when the terms can be reconciled and reflect the parties’ particular bargain.
- Civil Code § 1654 is a tie-breaking rule applied only after ordinary interpretive tools fail to resolve meaning.
- In a wraparound (all-inclusive) financing arrangement, prepayment of the underlying senior note does not, absent an express contractual right, create a right to prepay or accelerate payoff of the wraparound note.
- A contractual prohibition on voluntary prepayment in a commercial real estate loan is not, without additional facts, an unreasonable restraint on alienation under Civil Code § 711, because it regulates debt economics rather than eliminating the ability to transfer the property subject to existing financing.

## Conclusion

The court held that the parties’ wraparound note barred voluntary prepayment beyond specified principal-reduction payments, that prepaying the underlying loan did not alter the borrowers’ obligations under the wraparound note, and that enforcing the lock-in clause did not violate California’s prohibition on unreasonable restraints on alienation.


Gutzi Assocs. v. Switzer, 215 Cal. App. 3d 1636 (Ct. App. 1989)