Ellis v. Butterfield, 12086

• Decision Date: 13 July 1977
• Docket Number: No. 12086,12086
• Parties: Wayne E. ELLIS and J. Evelyn Ellis, husband and wife, Plaintiffs-Appellants, v. Delwin W. BUTTERFIELD and Clara R. Butterfield, husband and wife, Defendants-Respondents.
• Court: Idaho Supreme Court

Page 1334

570 P.2d 1334

98 Idaho 644

Wayne E. ELLIS and J. Evelyn Ellis, husband and wife, Plaintiffs-Appellants, v. Delwin W. BUTTERFIELD and Clara R. Butterfield, husband and wife, Defendants-Respondents.

No. 12086.

Supreme Court of Idaho.

July 13, 1977.

Rehearing Denied Dec. 1, 1977.

Opinion on Denial of Rehearing Jan. 4, 1977.

John C. Hepworth, of Hepworth, Nungester, Felton & Hart, Buhl, for plaintiffs-appellants.

Daniel A. Slavin, of Stephan & Slavin, Twin Falls, for defendants-respondents.

BAKES, Justice.

This appeal presents questions concerning the relative rights and interests of a vendor and a defaulting purchaser under an installment land sale contract. Wayne E. and J. Evelyn Ellis, the purchasers, appeal from a judgment of the district court, Twin Falls County, declaring their contract terminated and allowing the vendors, Delwin and Clara Butterfield, to retain all payments made under the contract, and awarding the vendors $1,500.00 attorney fees. Ellises contend that the trial court should have ordered the vendors to accept their tender of the balance owing on the contract. We affirm, except as to the award of attorney fees.

On September 18, 1967, Ellises and Butterfields entered into a land sale contract wherein Ellises would purchase from Butterfields certain commercial property in Buhl. The purchase price was $17,232.00, bearing interest at 7% with payments of $125.00 per month for the first year and $209.00 per month thereafter. The purchasers agreed to pay all property taxes accruing thereafter, to procure a fire insurance policy on the premises, and to deposit a life insurance policy in escrow naming Butterfields as beneficiary. The contract recites that time is of the essence and in the event of the purchasers' default, the vendors had the option to:

"(a) Declare this agreement terminated and upon the making of such declaration all of the rights of the Buyers to continue said purchase or to continue in possession of said premises shall immediately terminate and Sellers shall retain all money paid to them as purchase price as liquidated damages; or

"(b) Declare all installments of purchase price, which installments include interest, due hereunder to be immediately due and payable, provided, however, that before the termination of this agreement or before the declaration of all installments of purchase price, which installments include interest immediately due and payable, the Sellers must give Buyers thirty (30) days written notice of their intention to terminate this agreement or to declare all installments of purchase price immediately due and payable and said written notice shall contain the grounds upon which such action is based and if within such thirty day period the Buyers shall fully comply with and conform with the provisions hereof for the breach of which the Sellers shall give notice, then and in that event this agreement shall remain and be in full force and effect the same as if such default by Buyers had never been made; . . ."

The contract also provided that if either of the parties engaged the services of an attorney to enforce their rights under the contract, the attorney fees of the prevailing party would be paid by the other party.

Ellises made payments on the contract, although they were frequently delinquent. Butterfields sent Ellises letters in May, 1972, and October, 1972, advising them that they were in default of payments. In addition, the purchasers had not paid the property taxes for the years 1970-1974, and the vendors had received notices in 1969 and in 1970 that the fire insurance on the property had been cancelled.

In the fall of 1973, Ellises again became delinquent on their payments and on December 17, 1973 Butterfields sent a thirty day notice of intent to terminate the agreement for failure to pay the installments when due. The Ellises did not cure their default within thirty days, and by letter dated January 21, 1974, Butterfields' attorney demanded of the escrow bank a return of the escrow papers based upon the proof of service of Butterfields' letter of December 17, 1973. On January 23, 1974, Ellises tendered a cashier's check for $657.00 (presumably the amount in default) to the escrowholder. However, the vendors refused to accept this tender and on January 29, 1974, Ellises were served with a letter from Butterfields demanding that they quit the premises because the contract was terminated. Ellises then negotiated for a loan of the entire contract balance, which was tendered to the vendors along with approximate attorney fees on March 12, 1974. Butterfields rejected this tender also, and Ellises brought this suit seeking to compel Butterfields to accept the balance due on the contract and to deliver a warranty deed to them. Butterfields counterclaimed for termination of the Ellises' rights under the contract according to the contract provisions, restitution of possession and attorney fees.

By stipulation of the parties, the matter was submitted to the district court on the basis of uncontradicted facts in the pleadings, some testimony, and numerous exhibits. In its findings of fact and conclusions of law, the trial court found that the thirty day period following Butterfields' demand letter had expired on January 17, 1974, and therefore the sellers were not obligated to accept the buyers' tender of the amount in default on January 23, 1974. The court noted that the vendors had paid the taxes on the property for the years 1971 and 1972, and the property taxes for 1973 and 1974 remained unpaid, and also that the vendors had an unsatisfied judgment against the Ellises for attorney fees incurred in previous attempts to enforce the contract against them.

The court concluded that it would not be inequitable or unreasonable to allow the vendors to retain all amounts paid by the purchasers, declared the contract terminated, and awarded sellers restitution of possession and $1,500.00 attorney fees and costs. The Ellises have appealed. ¹

The appellants assign as error the ruling of the trial court declaring the contract forfeited and its refusal to compel the vendors to accept their tender of the amounts owing on the contract, as well as their subsequent tender of the balance of the contract. They also assign as error the award of attorney fees to the vendors, and the trial court's denial of their motion for a new trial.

An installment land sale contract is one of three security devices generally used in credit transactions in real estate and is, in essence, a hybrid composed of property law concepts on the one hand and contract law on the other. While the transaction involves the transfer of ownership of real property, it is governed by the terms of a contract in which vendor and purchaser join. The vendor generally, but not invariably, deposits a deed in escrow, but title does not pass to the purchaser until all installments are paid in accordance with the contract. The contract is frequently called a "poor man's mortgage" because the vendor, as with a mortgage, finances the purchaser's acquisition of the property by accepting installment payments on the purchase price over a period of years, but the purchaser does not receive the benefit of those remedial statutes protecting the rights of mortgagors. See I.C. §§ 6-101 et seq. The land secures the purchaser's performance because in the event of his default, the vendor ordinarily retains the right to terminate the transaction and retake the property. The advantage to the purchaser is that he does not have to procure the expensive (and sometimes unavailable) institutional financing; the advantage to the vendor is the theoretically simple procedure of terminating the purchaser's interest in the event of default as contrasted with the expensive and time consuming mortgage foreclosure action, with its right of redemption. Comment, Forfeiture: The Anomaly of the Land Sale Contract, 41 Albany L.Rev. 71, 74-76 (1977).

When the purchaser under a land sale contract defaults in his payments, such contracts usually provide that the vendor can terminate either the contract or the purchaser's interest in it, and the purchaser forfeits his payments and all of his rights in the land. If the purchaser is several years into the contract, this remedy may be unduly harsh. But when the purchaser is in default, what is his interest and what are his rights under the defaulted contract? The parties to the transaction chose the contract as the vehicle by which the transfer of the property would be governed. If they had used a conventional mortgage, the mortgagee would have had to bring statutory foreclosure proceedings against the defaulting mortgagor, I.C. § 6-101 et seq. and the mortgagor would have had six months after the judicial sale (if the property is 20 acres or less) in which to redeem, I.C. §§ 6-101, 11-402. Further, the mortgagee would only be entitled to recover the amount due on the mortgage from the proceeds of the judicial sale, although as a practical matter the mortgagee ordinarily bids the property in at the judicial sale for the amount of the balance owing on the debt, and the mortgagor then has the redemption period in which to redeem and protect any "equity" which he may have.

The parties to a sale of land might also have availed themselves of the statutory deed of trust to secure their respective rights. See I.C. § 45-1502 et seq. Under the Trust Deeds statute, the property is conveyed to a trustee for the benefit of the vendor and in the event of the purchaser's default the trustee can conduct an extra-judicial sale of the property and satisfy the debt. Under this procedure, the defaulting purchaser is given 115 days from the date of the filing of the notice of default within which to cure his default, I.C. § 45-1506. A trustee's sale is final, and the purchaser has no right to redeem from the person who purchased the property at the trustee's sale. Roos v. Belcher, 79 Idaho 473, 321...