Kallenbach v. Lake Publications, Inc.

• Decision Date: 10 May 1966
• Citation: 30 Wis.2d 647,142 N.W.2d 212
• Parties: Harold KALLENBACH et al., Appellants, v. LAKE PUBLICATIONS, INC., a corporation, et al., Respondents.
• Court: Wisconsin Supreme Court

Page 212

142 N.W.2d 212

30 Wis.2d 647

Harold KALLENBACH et al., Appellants, v. LAKE PUBLICATIONS, INC., a corporation, et al., Respondents.

Supreme Court of Wisconsin.

May 10, 1966.

Daniel I. D'Amico, Cumberland, for appellants.

Douglas, Omernik & Bitney, Spooner, for respondent Lake Publications, Inc.

HEFFERNAN, Justice.

The land contract contained the clause that it the vendee 'shall fail to make any of the payments of purchase money and interest * * * or fail to pay the taxes * * * this agreement shall at the option of the said parties of the first part (vendor) be henceforth utterly void * * * and all payments thereon forfeited * * *.'

Unlike the recently approved land contract form 36, the contract in the instant case contained no acceleration clause making the whole sum due and payable in the event of a default. The trial judge held that, in the absence of a clause accelerating the entire debt, the vendee was obligated only to pay up the delinquencies as a condition for redemption from the strict foreclosure.

We cannot agree with the trial judge, for his conclusion is inconsistent with the rights of the parties under a land contract and fails to afford the remedy of strict foreclosure sought by the vendor.

By execution of a land contract, the vendee becomes the owner of the land in equity, while the vendor retains legal title to secure the balance due on the purchase price. ¹ Pomeroy explains this 'equitable conversion' by stating:

'In equity the vendee is regarded as the real beneficial owner, even though he has not paid the purchase price; the vendor holds the legal estate as trustee, and when the terms of the contract are complied with, he is bound to convey. Until those terms are complied with, the legal title remains in the vendor as his security; or, as it is otherwise expressed, he has a lien upon the vendee's equitable estate as security for payment of the purchase money according to the terms of the agreement * * *.' ²

Under the terms of the contract, when a default occurs, the vendor may pursue several remedies to recoup his loss. Oconto Co. v. Bacon (1923), 181 Wis. 538, 543, 195 N.W. 412, 40 A.L.R. 175. He may elect to sue at law for the unpaid purchase price, a remedy not likely to be pursued unless the purchaser has other assets which may be sold to satisfy the judgment. He may sue for specific performance of the contract. Under this remedy the vendor elects to affirm the contract by having the property auctioned at judicial sale. The vendor may recover only the purchase price plus his costs and disbursements. In the event the property sells for a price in excess of the contract price, the surplus belongs to the buyer, but if a deficiency results the purchaser is liable for the deficiency.

He may declare the contract at an end, and in the event the equitable interest of the purchaser is insignificant, that equitable right under the contract may be removed in a quiet-title action as a cloud on the title of the legal owner. Oconto Co. v. Bacon (1923), 181 Wis. 538, 543, 195 N.W. 412, 40 A.L.R. 175.

The remedy of ejectment may also be available in cases of extreme and inexcusable default by the vendee where there could be no showing of any equitable right to defeat the title holder's right to immediate possession. Britt v. Bauman (1929), 199 Wis. 514, 226 N.W. 955. In the case of ejectment as in quiet title, the vendor elects to declare the contract at an end.

The remedy of strict foreclosure is, however, most frequently resorted to in Wisconsin. In Taft v. Reddy (1926), 191 Wis. 144, 210 N.W. 364, Mr. Justice Rosenberry referred to strict foreclosure as 'one of the remedies which the vendor has when he declares the contract at an end.' In a recent case the court took the approach that:

'The foreclosure of the land contract being a proceeding is equity does not seek a forfeiture, but affirms the contract and thereby recognizes that the vendee has an equitable interest in the real estate. It treats the contract as in full force and effect. The vendor offers to perform his covenants and asks that the vendee perform his, and only in case the vendee fails to perform within a time set by the court are the vendee's rights thereunder foreclosed.' Henry Uihlein Realty Co. v. Downtown Dev. Corp. (1960), 9 Wis.2d 620, 628, 101 N.W.2d 775, 779.

However, the Wisconsin cases and writers generally explain strict foreclosure as a recission, voiding or ending or 'calling off' of the contract by the vendor. Superior Consolidated Land Co. v. Nichols (1892), 81 Wis. 656, 51 N.W. 878; Oconto Co. v. Bacon, supra, 181 Wis. p. 544, 195 N.W. 412; Shenners v. Pritchard (1899), 104 Wis. 287, 80 N.W. 458; 1942 Wisconsin Law Review 90, 95; 1958 Wisconsin Law Review 260, 278, 280; 1960 Wisconsin Law Review 379, 380; Beuscher, Farm Law in Wisconsin, p. 81. New real estate form 36 uses the terminology that the vendor can declare 'the contract at an end' when a default occurs. Only the Uihlein Case, supra, and the author of the article appearing in 6 Wisconsin Law Review 59 takes the position that the action of strict foreclosure is anything but a voiding or termination of the contract. Perhaps a more reasonable (if reason is an element of the mythological world of the doctrine of equitable conversion) explanation appears at III American Law of Property, p. 187, sec. 11.75:

'* * * when a purchaseer fails to perform as required by the contract, a vendor may in many jurisdictions obtain a decree of strict foreclosure, i.e., a decree fixing an ultimate date of maturity later than that provided in the contract. If the purchaser fails to fulfill his obligations by that time, his equitable interest in the property will, without any judicial sale thereof, be barred and foreclosed and his rights under the contract terminated * * * this form of action has for its purpose not only the the fixing of a date for performance if that is to occur, but, if it does not occur, cutting off all possibility of any later claim of the purchaser which would could the title held by vendor * * * on behalf of the vendee, it is generally held that the action is effective to fully liquidate and discharge the contract after the period fixed for payment has expired and that it bars any other rights of the vendor under the contract * * *.'

Whether we conceive the rationale to be that the vendor is standing on his contract and merely demanding that vendee now perform his contract on terms a court considers just or suffer the forfeiture of what he has already paid together with being foreclosed of any further rights in the land under the term of the contract, or whether the vendor by a strict foreclosure is declaring the contract void and the rights under it forfeited subject to the court of equity's allowing the vendee to have one more change to perform under conditions that are just and equitable appears, in view of the fictions that are embedded in the law of vendor and vendee, merely tautegorical.

For all practical purposes under either theory, the vendor has in effect blown the whistle and called the game off because the vendee will not abide by the rules. The court (if it find that the equities of the vendee are not merely nominal as in Oconto Co., supra, and Britt, supra), however, will not allow the absolute forfeiture of the vendee's rights. The right that the vendor relies upon, when he blows the foreclosure whistle, is the right to get his land back, a right that, in a sense, the contract contemplates, since the right to the land that the vendee acquires from the vendor is forfeited by vendee's breach. The vendor by electing to use the remedy of strict foreclosure foregoes any right to collect the amount of the debt. He cannot demand the return of the land and also ask for the total purchase price. If he wishes the purchase money and not land, he must elect specific performance (judicial sale) which will give him judgment for the balance due to be paid out of the sale price or, if the proceeds are insufficient, additional judgment against the vendee for the deficiency. In this instance or where the vendor seeks a money judgment without relying on the repossession of the land, it is essential that there be a clause in the contract if the entire debt is to be accelerated. The presence or absence of an acceleration clause is,...