Brief Fact Summary. Plaintiffs brought an action to obtain possession of real estate through enforcement of a forfeiture clause in a land sale contract. The land sale contract was for a total purchase price of $36,000.00 in yearly $2,500.00 payments, without interest, and that in case of default, if such default should continue for 30 days, then all monies paid would be forfeited and taken as liquidated damages.
Synopsis of Rule of Law. A conditional land sales contract is the same as a secured transaction, the provisions of which are subject to all the proper and just remedies at law and equity
Issue. Are the Plaintiffs entitled to forfeiture and possession?
Held. No. Plaintiffs are entitled to foreclosure and judicial sale, along with the right of redemption in Defendants. Judgment reversed.
The court discussed whether a waiver had occurred. The general rule for waiver is if a contract for the sale and purchase of land contains provisions like the case here, the vendor may waive strict compliance with the provisions of the contract by accepting overdue or irregular payments. Equity requires the vendor to specific notice of his intent and that he will insist on his right of forfeiture unless the default is paid within a reasonable and specified time.
Forfeitures are generally disfavored by the law. Equity abhors forfeitures and beyond any question has jurisdiction, which it will exercise in a proper case to grant relief against their enforcement. 30 C.J.S. Equity Section:56 (1965).
The court had to determine if the forfeiture of $21,000.00 was reasonable as a measure of damages. If the damages in a forfeiture are unreasonable, i.e. disproportionate to the loss actually suffered, they must be characterized as penal rather than compensatory. The court found the amount here to be excessive.
The conditional land sale contract will be viewed by the court as a sale with a security interest in the form of legal title reserved by the vendor. The retention of the deed in this case is the same concept as a lien or mortgage.
Forfeiture is closely related to strict foreclosure, which is an English rule no longer favored in America. The American rule is to have foreclosure by judicial sale, in which process the Defendants have the right of redemption. The court held that a conditional land sales contract is the same as a secured transaction, the provisions of which are subject to all the proper and just remedies at law and equity.
Concurrence. The concurrence would not broadly abandon forfeiture in land sales cases, particularly in cases where the person trying to avoid forfeiture has little equity in the property.
Discussion. Clearly, no matter what the court found as its basis for decision, it would be manifestly unfair to deprive the Defendants of both the monies paid under the contract and possession of the property. The court seemed to disfavor forfeiture to a great extent, however. Consider how the court would have resolved the case had the Defendants only paid $5,000.00 toward the purchase price of $36,000.00. Where would the court draw the line between a reasonable forfeiture and a penalty?