Rothenberg v. Follman
| Decision Date | 02 October 1969 |
| Docket Number | Docket No. 4572,No. 2,2 |
| Citation | 172 N.W.2d 845,19 Mich.App. 383 |
| Parties | Moses ROTHENBERG, Max Carmen and Sarah Carmen, his wife, and Ben Tkatch, Plaintiffs-Appellees, v. Hy A. FOLLMAN and Ruth Follman, his wife, Defendants-Appellants |
| Court | Court of Appeal of Michigan — District of US |
Emanuel J. Greenwald, New York City, for defendants-appellants; Joel M. Sturtz, Coran, N.Y., of counsel.
Maxwell I. Silverstein, Detroit, for plaintiffs-appellees.
Before J. H. GILLIS, P.J., and LEVIN, and BRONSON, JJ.
The defendants appeal a judgment setting aside a forfeiture of a land contract and granting plaintiffs specific performance of the contract on the condition that plaintiffs pay the defendants the balance of principal and interest owing under the contract and in addition $10,000 for costs, damages and expenses caused the defendants by the plaintiffs' delay in payment. The plaintiffs cross-appeal the $10,000 award.
The land contract, 1 dated May 9, 1957, is for the sale and purchase of 7.42 acres of vacant land in the city of Southfield, Michigan. The purchase price was $40,000, of which $10,000 was paid down and the balance was payable in installments of $1,500 plus interest semi-annually on May 9 and November 9.
At the time the defendants acquired the seller's interest under the contract the plaintiffs, the owners of the purchaser's interest, 2 had paid $32,500 of principal and $9,319.76 as interest, and payment of taxes was current. The principal balance was $7,500. The $1,500 principal and $225 interest payment due May 9, 1965 was not paid. Some of the owners of the purchaser's interest attempted to pay their shares of this installment payment, but the full payment was not timely made because, it seems, of differences among the owners of the purchaser's interest.
On August 27, 1965 plaintiff Moses Rothenberg wrote the defendants' attorney stating that he had learned of the transfer of the seller's interest to the defendants and that he and plaintiffs Carmen and Tkatch were prepared to pay 'our share, either in payments or in full, for the land.' The defendants responded on August 31, 1965 by sending notices of intention to declare a forfeiture of the land contract giving the purchasers until September 27, 1965 to pay the overdue installment. The overdue installment was not paid and on October 1, 1965 notices of forfeiture were duly mailed to the purchasers.
One of the purchasers testified that he was under the impression that there was ample time in which to act, as he had been advised by an attorney at law that there is a right to redeem from a forfeiture. 3 Subsequently Rothenberg was advised by another attorney that there was a serious question whether there is a right to redeem and on December 10, 1965 that attorney wrote defendants' attorney advising that he was prepared to pay the contract balance in full. There were further communications between the attorneys but nothing came of them. This action was commenced on January 12, 1966.
The estate of a land contract purchaser does not (in contrast with a mortgage) include as one of its incidents an equity of redemption. 4 This means that a land contract seller need not invoke a judicial or statutorily created remedy to foreclose the rights of the purchaser as must a mortgagee if he wishes to foreclose the mortgagor's equity of redemption. Typically the seller will find it necessary to institute summary proceedings 5 or an action for ejectment or an equitable action to foreclose the purchaser's interest so that he can obtain peaceable possession. 6 But where the purchaser is not in physical possession of the land or possession can be recovered peaceably, as is frequently true where the property is vacant, 7 the purchaser's rights may be declared forfeited by the seller without proceedings in court if notice of forfeiture is duly given. 8
Nevertheless, a court of equity has the power to relieve the defaulting purchaser from the forfeiture and to compel specific performance by the seller when in the court's judgment to do otherwise would result in an unreasonable forfeiture. 9 Whether a particular forfeiture is unreasonable depends upon a number of factors, among them the amount and length of the default, the amount of the forfeiture (I.e., the sum of the amounts paid to the seller and the value of the property at the time of forfeiture less the contract price), the reason for the delay in payment and the speed with which equity's aid was sought.
In this case the delinquent installment was due May 9, 1965; the amount in default was $1,500 principal plus $225 interest; some of the owners of the purchaser's interest attempted to pay their 'shares' of the delinquent installment.
The record is silent regarding the value of the property in 1965; we take judicial notice of the fact that the city of Southfield is one of the more prosperous and fastest growing suburbs of Detroit and that it is, therefore, improbable that the property declined in value after it was purchased for $40,000 in 1957. At the time of forfeiture the principal balance owing was $7,500.
The contract was forfeited on October 1, 1965. In December, 2 months after the date of forfeiture (7 months after the date the installment was due), the purchasers offered to pay not only the delinquent installment but also the entire balance owing on the contract. The plaintiffs sought equity's aid in obtaining relief from the forfeiture in January, 1966, less than 4 months after the forfeiture and less than 1 month after it appeared that a tender of the entire balance owing under the contract had been or would be rejected.
It is apparent that the delay in making the payment was relatively short, the amount in default was relatively small, the amount of the forfeiture was large both quantitatively and in relation to the balance owing and that the purchasers acted in good faith in offering to pay the entire balance owing. They might have acted more diligently, but the delay in offering to pay and in commencing this action does not, considering the other factors just mentioned, preclude granting relief. The trial judge did not err in deciding that the forfeiture which the sellers sought to retain for themselves was totally unreasonable and that he should exercise his equitable powers to relieve against it and to grant the purchasers specific performance of the contract.
Although the purchasers failed to make a formal tender before suit was commenced this is not necessarily fatal; 10 it is merely one of the factors to be considered in determining whether equitable relief will be granted. It is clear that in this case a tender would have been rejected. 11 The plaintiffs on April 25, 1966, deposited in court the balance of $7,500 and accrued interest owing under the contract.
The land contract in this case provided that time shall be of the essence. While there are judicial 12 and textual 13 statements that equity will not relieve against a forfeiture where the contract contains a time essence clause, this overstates the matter.
Just because the parties have declared that time shall be of the essence does not necessarily make it so. The parties cannot by use of labels convert an apple into an orange. It is the business of courts to look through form to substance. 14
Furthermore, the fact that the parties have stipulated that time is of the essence is but one of the factors to be taken into consideration in determining whether equity will intervene to set aside a forfeiture. Where the forfeiture is disproportionately large and the other facts, circumstances and equities cry out for relief, a court of equity may, nevertheless, intervene.
'The next objection is, that by the terms of the contract, it was expressly understood and declared that time is and shall be deemed and taken as of the very essence of the contract. Time is always of the essence of a contract when an act is required to be done within a specified time; as much so as the act itself, and no more. Every part of a contract is of its essence. It is not very clear what courts and text-writers who use this phrase mean, unless it be that a subsequent performance can not be decreed, under all the circumstances of the case, by a court of equity, by way of relieving against the forfeiture of the contract, without doing injustice to the party against whom the relief is asked. This is the principle equity acts on in relieving against forfeitures. Nor will it, by any stipulation of the parties, be ousted of its jurisdiction, or refuse to relieve against the exaction of the pound of flesh, although the parties have, in express terms, stipulated for it. (Manning, J.) * * *
'Time can not be made essential in a contract, merely by so declaring, if it would be unconscionable to allow it.
Parties may stipulate to make it so, where the stipulation is reasonable; but, as in stipulated damages, if the stipulation is not reasonable, courts will not regard it.' (Campbell, J., opinion of the Court.) Richmond v. Robinson (1864), 12 Mich. 193, 199, 200, 202.
A time essence clause, in the sense in which we now consider it, does indeed function essentially as a stipulation for the payment of liquidated damages upon default. In this case the time essence clause coupled with the forfeiture clause purport to permit the seller to retain whatever has been paid by the purchaser plus the property which is the subject matter of the contract because of the purchaser's failure to pay on time an installment of the remaining contract balance. However, the amount of the seller's potential damage (the unpaid purchase price) is reduced by every payment the purchaser makes; the amount of the forfeiture (the liquidated damages) is increased by every payment the purchaser makes in reduction of the seller's potential injury. A liquidated damage...
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