## Facts

- Successors to the owners/lessors of Beverly Hills real property entered a 95-year ground lease in 1929 with a fixed base rent of $2,000 per month and a gold clause indexing payment to gold.
- In 1933, federal law invalidated private gold clauses and allowed “dollar-for-dollar” discharge in U.S. currency, rendering the lease’s gold clause unenforceable.
- In 1977, Congress amended federal law to permit enforcement of gold clauses in obligations “issued on or after” the amendment’s effective date.
- By the early 1980s, Triangle Company held the lessee’s interest and subleased to Bank of America, which occupied the property and paid rent to Triangle.
- In 1981, Bank of America paid more than $4 million to succeed to Triangle’s position as lessee; Triangle’s leasehold interest was extinguished and Bank of America became the direct tenant under the ground lease.
- After the 1981 transaction, Bank of America continued paying only the $2,000 base rent, treating the gold clause as unenforceable.
- The lessors later demanded gold-clause rent and back rent; Bank of America refused.
- The trial court entered judgment for Bank of America, holding the gold clause remained unenforceable.

## Issues

1. Whether a gold clause in a 1929 ground lease, invalidated by federal law in 1933, became enforceable after the 1977 federal amendment because of the 1981 transaction.
2. Whether the 1981 transaction created an “obligation issued” after the 1977 amendment under 31 U.S.C. § 5118(d)(2).
3. Whether the 1981 transaction constituted a novation under California law, substituting a new lease obligation for the prior one.

## Decision

- The Court of Appeal reversed the judgment for Bank of America and remanded.
- The court held the 1981 transaction was a novation creating a new obligation between the lessors and Bank of America.
- Because the new obligation was “issued” in 1981, the 1933 federal prohibition did not apply under 31 U.S.C. § 5118(d)(2).
- The gold clause was therefore enforceable against Bank of America as part of the post-1977 obligation.

## Legal Principles

- Under 31 U.S.C. § 5118(d)(2), the federal prohibition on gold clauses does not apply to obligations issued on or after the 1977 amendment’s effective date; gold clauses may be enforced in such post-1977 obligations.
- A novation under California law requires substitution of a new obligation for an existing one, with intent to extinguish the original obligation; the prior obligation is discharged and a new one arises.
- A post-1977 novation that creates a new lease obligation may render enforceable a gold clause carried forward from a pre-1933 contract, because enforcement rests on the new obligation rather than retroactive revival of the old one.

## Conclusion

The court concluded that the 1981 restructuring and assignment extinguished the prior lessee’s interest and substituted Bank of America as direct tenant, creating a new post-1977 lease obligation; as a result, the lease’s gold clause was enforceable under federal statute, and the case was remanded for further proceedings.


Wells Fargo Bank, N.A. v. Bank of Am. NT & SA, 32 Cal. App. 4th 424 (Cal. Ct. App. 1995)