Sharp v. Holthusen

Brief Fact Summary.

Party 1 bought a home from party 2.  One of party 1's obligations was to discharge by a certain date a mortgage held by party 2.  Party 1 missed the deadline, and pursuant to the contract could have forfeited their rights to the home.

Synopsis of Rule of Law.

Pursuant to the Montana antiforfeiture statute "[w]henever by the terms of an obligation a party thereto incurs a forfeiture or a loss in the nature of a forfeiture by reason of his failure to comply with its provisions, he may be relieved therefrom upon making full compensation to the other party, except in case of a grossly negligent, willful or fraudulent breach of duty."

Facts.

The Plaintiffs, Ray D. and Freda Sharp (the "Plaintiffs"), entered into an agreement to sell their home to the Defendants, Earnest D. and Donna M. Holthusen (the "Defendants") on October 11, 1976.  The Defendants were obligated to assume the Plaintiffs' Veterans Administration loan (the "VA loan"), and discharge it by October 11, 1977.  After obtaining possession of the property on October 11, 1976, the Defendants put $7,000 in cash down and made monthly payments equaling $1,081.  The Defendants failed to obtain financing to pay off the VA loan by October 11, 1977.  On October 21, 1977, the Defendants were sent a notice of default.  The Defendants did not cure the default within 45 days, which was specified in the contract.  Shortly thereafter, the parties began negotiations to compromise the claims they had against one another, and in January 1978, the Defendants obtained the necessary financing.  The closing date was set for January 16, 1978, but a water purity test was a prerequisite to the closing.  The test showed that the water was contaminated, so the closing could not proceed.  To remedy this, the Defendants embarked on digging a new well.  The well was completed by March 1978 and the financing closed shortly thereafter.  Payment of the loan was then tendered to the escrow agent.  The escrow agent, at the direction of the Plaintiffs, however, refused the payment.  The Plaintiffs wanted the Defendants to pay all attorney fees and release the Plaintiffs from all claims related to the contamination in the wwll.  The Defendants paid all the attorneys fees, but refused to release the Plaintiffs from claims relating to the well.  The parties could not settle their dispute, and the Plaintiffs filed suit for "forfeiture of the contract and for repossession of the real property."

Issue.

May a party who defaulted on their obligation be relieved from for¬feiture by tendering the full amount owed?

Held.

Yes.  The court first quotes Section 28-1-104 of the MCA, which states: "Whenever by the terms of an obligation a party thereto incurs a forfeiture or a loss in the nature of a forfeiture by reason of his failure to comply with its provisions, he may be relieved therefrom upon making full compensation to the other party, except in case of a grossly negligent, willful or fraudulent breach of duty."  Based on this statute, the court observes how in the past parties that have been in default, and subject to a penalty of forfeiture, have been allowed to redeem their right to property.  Relief from forfeiture has been allowed "in any case where he sets forth facts which appeal to the conscience of a court of equity."  Even if a contract allows for forfeiture in the case of default, the court by using its powers of equity can "relieve a party from the consequences of his default." 
•    Here, the court observed that the Defendants' actions were not "intentional, willful or fraudulent".  Instead, the Defendants did everything in their power to make sure they paid the monies due on time.  The only reason payment was late was that the condition of the water well did not allow the Defendants to obtain the necessary financing.  During the five month period between default and actual tender of payment, the parties were engaged in settlement negotiations and the Defendants were drilling a new well.  At no time did the Plaintiffs object to these events.  As such, this failure to perform was reasonable. 
•    The court affirmed the District Court's finding that the Defendants were entitled to equitable relief.  There was sufficient evidence to appeal to the "conscience of the court" and allowing the default would be "harsh and inequitable."  The Defendants made an initial downpayment, made monthly payments to the Plaintiffs, made payments on the VA loan, spent over $1700 to drill a new well, and had about $10,000 in equity in the land.
•    The court recognized that the Defendants defaulted on their obligations under the contract.  However, the court also realized the Defendants maintained their rights under the antiforfeiture statute, 28-1-104, MCA, because they tendered all monies owed including the Plaintiffs attorneys fees and the Plaintiffs suffered no loss.

Discussion.

This case is very interesting to read alongside [Burger King Corp. v. Family Dining, Inc.] to see the criteria different states apply in determining whether a party should be relieved from forfeiture.