Roth Development, Inc. v. A. R. John General Contractors, Inc.

Decision Date24 November 1972
PartiesROTH DEVELOPMENT, INC., Appellant, v. A. R. JOHN GENERAL CONTRACTORS, INC., J. E. Tapp and Bessie Tapp, Respondents.
CourtOregon Supreme Court

Lloyd B. Ericsson, Portland, argued the cause for appellant. With him on the briefs were Dusenbery, Martin, Bischoff & Templeton, and Robert E. Glasgow, Portland.

Donald H. Joyce, Portland, argued the cause and filed the brief for respondent A. R. John General Contractors, Inc.

TONGUE, Justice.

This is a suit to quiet title in which plaintiff claims ownership of the interest of one defendant under a contract by which that defendant was the purchaser of real estate from the other defendants. The trial court entered a decree dismissing plaintiff's complaint with prejudice. Plaintiff appeals. We affirm.

In 1967 defendant A. R. John General Contractors, Inc. ('John') paid defendants J. E. Tapp and Bessie Tapp ('Tapp') $500 for an option to purchase 118 acres of land in Washington county for $125,000. Before that option expired plaintiff made a contract with John for development of the Tapp property as a residential airport complex. By the terms of that contract plaintiff agreed to purchase from John 24 acres of that property, to include a runway, as well as other lots, for $36,000, with a down payment of $11,500. That down payment, in turn, provided John with most of the funds required by John to exercise the option and make the down payment of $12,000 as provided by his purchase contract with Tapp.

Subsequently, plaintiff also paid $24,605 as the balance due for purchaser of the 24 acres. That payment was made by plaintiff directly to Tapp and plaintiff received a deed to that property.

The land sale contract between Tapp and John required John to pay annual installments of not less than $7,533.33, with interest in addition to the minimum annual payments, but with the privilege of additional prepayments. That contract also included a forfeiture provision, with a time-essence clause, to become operative if John remained in default in its annual payments for a period of 10 days after written notice of such default.

As a protection to plaintiff's interest that the entire 118 acre tract be developed in accordance with deed restrictions as provided in its contract with John, that contract also included the following 'option-assignment' provision, in the event of a default by John in its contract with Tapp:

'In consideration of the mutual promises herein contained, A. R. JOHN grants to ROTH an option to assume A. R. JOHN'S purchaser's interest in the land retained by A. R. JOHN which is subject to the land sale contract from J. E. TAPP and BESSIE TAPP in the event A. R. JOHN defaults in making the payments required by the terms of that contract. ROTH may notify TAPP of this option to the end that the ten day notice of default which the land sale contract requires TAPP to give to A. R. JOHN in the event of default shall also be given to ROTH. In the event such default occurs, and ROTH cures such default, it is agreed that such occurrences shall operate as an assignment to ROTH of A. R. JOHN'S then remaining interest as purchaser under the land sale contract, without further payment or obligation on the part of ROTH. Provided, however, that the option granted by this paragraph shall not apply to any portion of the land under the TAPP-A. R. JOHN contract as to which A. R. JOHN as secured deed releases from TAPP.'

In 1968 and 1969 payments totaling $34,468.45 were made by John to Tapp (not including the $24,605 paid by plaintiff) and John received deed releases from Tapp to 23.588 acres as a result of such payments, as provided for in the Tapp-John contract. The 1970 payment in the amount of $10,751.18 (including $7,533.33 in principal and $3,217.85 in interest) was due from John to Tapp on December 27, 1970 and was not paid on that date. On December 29, 1970 Tapp sent a notice to John that the default must be cured within 10 days. A copy of that letter was sent to plaintiff.

On December 30, 1970 John sent Tapp a check for $2,217.85, claiming that to be the amount due as interest and that no principal payment was due in 1970, apparently by reason of the manner in which previous payments had been made and treated. Tapp then replied by letter to John disputing that contention and stating that John was 'still in default,' but that he was 'holding the check without accepting or rejecting it until such time as our differences are resolved.'

On January 8, 1971, the tenth day after the notice of default, and without prior notice to John of its intention to do so, plaintiff delivered to Tapp its check for the full amount of $10,751.18.

On January 22, 1971, John delivered to Tapp a check for $7,533.33, representing the principal payment due on December 27, 1970. All of such checks were held by Tapp, awaiting instructions from the court as to which to accept. Subsequently, and prior to trial, John also delivered to Tapp a check for the balance due on interest.

Under these facts the trial court held that although John was in default and had no right to place plaintiff's investment in the property in jeopardy, to adopt plaintiff's position would result in a forfeiture of John's rights and equity under its contract with Tapp; that 'the present suit is in actuality a suit for strict foreclosure,' and that since John had by then paid the amount due under its contract with Tapp the plaintiff was not entitled to strict foreclosure of its contract with John.

Plaintiff contends on this appeal that the trial court (1) in holding that the 'option and assignment' provisions in its contract with Roth should be 'construed as though they were provisions for strict foreclosure in a contract between buyer and seller'; (2) in holding that plaintiff 'sought the aid of the court in declaring a forfeiture because (a) plaintiff sought only a declaration that events had operated to satisfy the option and assignment provisions and (b) no forfeiture was involved'; and (3) 'in relieving John from its default when the consequences of the default were contracted by the parties in arms-length bargaining, no inequity was present and defendant John failed to seek such relief and showed no facts which would warrant it.'

This is a case in which the right of a party to a contract to enforce its provisions, as agreed upon, conflicts with the long-standing abhorrence by courts of equity toward the enforcement of contract provisions which result in forfeitures.

As recognized by the trial judge, however, in County of Lincoln v. Fischer et al., 216 Or. 421, 433, 339 P.2d 1084, 1090 (1959), this court in considering this problem, quoted with approval from another authority as follows:

"* * * Although the law will not assist in the vivesection of the victim, it will often permit the creditor to keep his pound of flesh if he can carve it for himself."

As we analyze the facts of this case, in order to resolve this problem, as applied to such facts, we must consider the following questions:

(1) Is the so-called 'option-assignment' provision of plaintiff's contract with John a contract provision for a forfeiture?

(2) If so, is that provision self-executing, so as to result in an accomplished forfeiture without need of aid by the court for its enforcement?

(3) If not self-executing, was John given such notice of plaintiff's election to declare the forfeiture, so as also to result in an accomplished forfeiture without need of aid by the court for its enforcement?

(4) If such notice was not given, was plaintiff entitled to a decree enforcing the 'option-assignment' provision of its contract with John in view of John's subsequent payment to Tapp of the delinquent payment in full?

1. The 'option-assignment' provision of plaintiff's contract with Tapp was a provision for a forfeiture.

Plaintiff contends that this court has recognized that parties have the right to contract as they see fit; that an assignment of property is valid although that property may be incapable of recovery without litigation, and that plaintiff 'only sought a declaration that events had operated to satisfy the option and assignment provisions' of its contract with John by 'automatic assignment,' and that 'no forfeiture was involved.'

It is a well-recognized rule that because the forfeiture of rights under contracts is not favored, contract provisions which may result in forfeitures are to be construed liberally in favor of the party against whom such a forfeiture may be claimed. Cf. Norton et ux. v. Van Voorst et ux., 191 Or. 577, 584, 231 P.2d 947 (1951).

In Stennick v. J. K. Lumber Co., 85 Or. 444, 476, 161 P. 97, 106, 166 P. 951 (1916), this court recognized that the term 'forfeiture' is broader than the term 'penalty' and 'may include not only the payment of a sum of money, but the loss of property or of some right in it by reason of failure or neglect of a party to perform a contract.' The court went on to state (at 477, 161 P. at 107) (quoting from another authority) that '(f)orfeiture assumes a preexisting valid contract or obligation.'

Applying these standards to the facts of this case, we conclude that the 'option-assignment' provision of plaintiff's contract with John was a contract provision for a forfeiture. It may be that in the usual case of a forfeiture one party to a contract loses his rights under the contract to the other party to that same contract as a result of some failure of performance by the first party, as in the case of the forfeiture to the vendor of the rights of a purchaser under a contract for the sale of land. Nevertheless, under the contract provision in this case, John would lose its rights as a purchaser under its contract with Tapp upon the exercise by plaintiff of the rights conferred upon him under the 'option-assignment' provision of its contract with John, and the fact that such rights are...

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  • Fry v. D. H. Overmyer Co., Inc.
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    • August 1, 1974
    ...et ux., 204 Or. 664, 683--684, 277 P.2d 775, 285 P.2d 523 (1955).17 Oregon cases cited by defendant include Roth Develop. v. John Gen'l Contr., 263 Or. 561, 503 P.2d 493 (1972); Western Rebuilders, Inc. v. Felmley, 237 Or. 191, 386 P.2d 813, 391 P.2d 383 (1964); Leathers et ux. v. Peterson,......
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