Johnson v. Gray

• Decision Date: 03 May 1978
• Citation: 265 N.W.2d 861
• Parties: Frank E. JOHNSON and Carrie L. Johnson, Plaintiffs-Appellants, v. Quentin E. GRAY and Linda L. Gray, Defendants-Appellees. Civ. 9266-A.
• Court: North Dakota Supreme Court

Page 861

265 N.W.2d 861

Frank E. JOHNSON and Carrie L. Johnson Plaintiffs-Appellants, v. Quentin E. GRAY and Linda L. Gray, Defendants-Appellees.

Civ. 9266-A.

Supreme Court of North Dakota.

May 3, 1978.

Zuger & Bucklin, Bismarck, for plaintiffs-appellants; argued by Robert V. Bolinske, Bismarck.

Richard P. Rausch, Bismarck, for defendants-appellees.

PAULSON, Judge.

This is an appeal by Frank E. and Carrie L. Johnson from the partial summary judgment of the Burleigh County District Court, entered October 21, 1977, dismissing the Johnsons' sixth cause of action contained in their third amended complaint against Quentin E. and Linda L. Gray. This is the second time these parties have been before this court on matters involving a contract for deed, executed on March 24, 1975, wherein the Johnsons agreed to sell their farm, excluding a 5-acre tract on which their home is located, to the Grays. The facts as they are stated in Johnson v. Gray, 251 N.W.2d 923 (N.D.1977), are by this reference incorporated herein, and we will avoid an unnecessary reiteration of those facts in this opinion.

The Johnsons commenced an action in the Burleigh County District Court requesting the court, inter alia, to cancel the contract for deed upon various legal theories. In their sixth cause of action contained in their third amended complaint, the Johnsons requested the district court to declare the contract for deed "terminated, null and void, and of no effect" because the Grays failed to correct certain defaults, as required by Chapter 32-18 of the North Dakota Century Code, within one year following notice of cancellation.

On August 31, 1977, the Johnsons moved for a partial summary judgment on this sixth cause of action, requesting the court to declare the contract for deed canceled under the provisions of Chapter 32-18, N.D.C.C.

On October 21, 1977, the district court entered a partial summary judgment on behalf of the Grays, dismissing the Johnsons' sixth cause of action, on the ground that the Johnsons failed to serve upon the Grays a proper notice of cancellation as required by Chapter 32-18, N.D.C.C. The Johnsons now appeal from that partial summary judgment.

In its Amended Order for Judgment the district court, pursuant to Rule 54(b) of the North Dakota Rules of Civil Procedure, made an express determination that there was no just reason for delay and directed entry of judgment. Consequently, the October 21, 1977, partial summary judgment of the district court is an appealable judgment. See, Melland Firestone, Inc. v. Streich, 226 N.W.2d 141 (N.D.1975); Hodny v. Hoyt, 224 N.W.2d 826 (N.D.1974).

The following issues have been raised on appeal for determination by this court:

1. Whether the Johnsons served the Grays with an effective notice of cancellation, pursuant to Chapter 32-18, N.D.C.C.; and

2. Whether the Grays corrected their defaults under the contract for deed, pursuant to the provisions of § 32-18-04, N.D.C.C., so as to reinstate the contract.

Chapter 32-18, N.D.C.C., provides a strict procedure for cancellation of a contract for the future conveyance of real estate. Aside from bringing a court action this is the only method by which a contract for deed can be canceled. Rohrich v. Kaplan, 248 N.W.2d 801 (N.D.1977); Vail v. Evesmith, 62 N.D. 99, 241 N.W. 719 (1932). If a person elects to use this statutory cancellation procedure, a notice of default must be served upon the defaulting party, and the defaulting party then has either six months or one year to correct the defaults upon which the cancellation notice was based, pursuant to § 32-18-04, N.D.C.C.

The Johnsons, choosing to use this statutory cancellation procedure, served a notice of cancellation upon the Grays, on February 5, 1976, the pertinent part of which notice states as follows:

"YOU ARE HEREBY NOTIFIED that the sellers elect to declare the entire purchase price and all remaining installments forthwith due and payable with accrued interest because of your default as follows: (1) failure to pay the first annual installment in the amount of $2,000.00 cash payable on or before February 1, 1976, with interest thereon, (2) Failure to pay required taxes and (3) Failure to obtain the required insurance.

"Pursuant to Section 32-18-04 of the North Dakota Century Code, you will have one year from the date of service upon you of this Notice of Cancellation in which to perform all of your obligations under the said contract along with payment of the cost of this notice herein and any subsequent occurring obligations under the said contract, or the said contract shall be cancelled."

The Johnsons, through this notice, declared the entire unpaid balance due and payable in accordance with an acceleration clause provided in the contract for deed. According to the notice, the Grays were required, under § 32-18-04, N.D.C.C., to perform all obligations under the contract, including payment of the entire accelerated balance, within one year, to avoid cancellation of the contract for deed.

The first issue which this court must determine is whether the seller can accelerate the unpaid balance pursuant to the terms of a contract for deed and then cause a buyer to forfeit under Chapter 32-18, N.D.C.C., for failure to pay the accelerated balance. We conclude that, under Chapter 32-18, N.D.C.C., a seller cannot, upon a buyer's default, accelerate the payments due on a contract for deed and then base a forfeiture on the buyer's failure to pay the entire accelerated balance.

Under the contract for deed, the Johnsons, upon default by the Grays, were authorized to declare the entire purchase price immediately due and to cancel the contract. However, under the cancellation procedure of Chapter 32-18, N.D.C.C., of which the Johnsons freely chose to avail themselves, the Grays must be allowed to cure or correct their defaults in the manner specified by the statute.

Pursuant to the provisions of § 32-18-04, N.D.C.C., the Grays had one year from the service of notice of cancellation "to perform the conditions or comply with the provisions upon which the default shall have occurred." We do not believe that the Legislature intended, by the use of this language, to allow a seller to make payment of an accelerated balance one of the conditions with which the buyer must comply in order to reinstate the contract and to prevent forfeiture of his equitable interests in the property under this statute. The statutory language is explicit and unambiguous that the contract is reinstated when the buyer removes the defaults, within the statutory period, which were grounds upon which the contract was statutorily canceled. The cases of Hampton Farmers Co-operative Company v. Fehd, 257 Iowa 555, 133 N.W.2d 872 (1965); and Needles v. Keyes, 149 Minn. 477, 184 N.W. 33 (1921), are directly in point.

The Minnesota cancellation and redemption statute in Needles, supra, is very similar to our present statute, Chapter 32-18, N.D.C.C. The Minnesota statute provided that, upon the buyer's default, the seller could serve the buyer with notice "specifying the conditions in which default has been made." The buyer then had thirty days to "comply with such conditions and pay the costs of service" in which event the contract would be reinstated. Upon the buyer's default in Needles, supra, the seller declared the entire principal immediately due and payable in accordance with an acceleration clause in the contract. The seller then served the buyer with a notice of cancellation which informed the buyer that he must, among other things, pay the entire accelerated balance within the statutory period to avoid cancellation of the contract under the Minnesota statute. The Minnesota Supreme Court held that the seller could not require payment of the accelerated balance as part of the cure to reinstate the canceled contract. In so holding, the court made the following statement:

" . . . (The seller) elected to proceed under the statute for a strict foreclosure by his own act, and must, therefore, permit the vendee to cure his default on the terms and in the manner specified in the statute.

"Conceding that the vendor had the right to declare the deferred installments due and to enforce payment of them in a proper proceeding, we are unable to hold that in this proceeding he could make the payment of such deferred installments one of the conditions with which the vendee must comply in order to reinstate the contract. We think the Legislature did not intend to permit him, by his own act, to add to the conditions which the vendee must perform to cure his default and save his equitable rights. We think that the Legislature intended that the contract should not be forfeited, if, within the prescribed time, the vendee removed such defaults as were made grounds of forfeiture by the terms of the contract itself. And we hold that in proceedings under this statute, the vendor cannot, by exercising an option to declare deferred installments due immediately, require the vendee to pay such deferred installments or forfeit his contract." Needles, supra 184 N.W. at 34.

Pursuant to § 32-18-04, N.D.C.C., the buyer is given a statutory period "in which to perform the conditions or comply with the provisions upon which the default shall have occurred . . .. Upon such performance and upon making such payments, together with the cost of service of such notice" the contract is reinstated. We believe this statute, like the statute in Needles,supra, entitles the buyer to reinstate the contract by performing only those conditions, the nonperformance of which gives the seller grounds to institute the statutory cancellation procedure. The law abhors a forfeiture, and if the meaning of a cancellation statute is ambiguous and susceptible of two constructions, that interpretation which mitigates against forfeiture should be adopted. We do not, however, believe that the pertinent language of Chapter 32-18,...