Skendzel v. Marshall, 773S145

Docket NºNo. 773S145
Citation261 Ind. 226, 301 N.E.2d 641
Case DateOctober 04, 1973
CourtSupreme Court of Indiana

Richard F. DeTar, Frank E. Spencer, Indianapolis, for appellants.

Le Roy K. Schultess, Howard E. Petersen, LaGrange, for appellees.

HUNTER, Justice.

Petitioners seek transfer to this Court as a result of an adverse ruling by the Court of Appeals. Plaintiff-respondents originally brought suit to obtain possession of certain real estate through the enforcement of a forfeiture clause in a land sale contract. Plaintiff-respondents suffered a negative judgment, from which they appealed. The Court of Appeals reversed, holding that the defendant-petitioners had breached the contract and that the plaintiff-respondents had not waived their right to inforce the forfeiture provisions of the contract.

In December of 1958, Mary Burkowski, as vendor, entered into a land sale contract with Charles P. Marshall and Agnes P. Marshall, as vendees. The contract provided for the sale of certain real estate for the sum of $36,000.00, payable as follows:

'$500.00, at the signing, execution and delivery of this contract, the receipt whereof is hereby acknowledged; $500.00 or more on or before the 25th day of December, 1958, and $2500.00 or more on or before the 15th day of January, 1960, and $2500.00 or more on or before the 15th day of January of each and every year thereafter until the balance of the contract has been fully paid, all without interest and all without relief from valuation and appraisement laws and with attorney fees.' (See 289 N.E.2d at 770.)

The contract also contained a fairly standard section which provided for the treatment of prepayments--but which the Court of Appeals found to be of particular importance. It provided as follows:

'Should Vendees have made prepayments or paid in advance of the payments herein required, said prepayments, if any, shall at any time thereafter be applied in lieu of further principal payments required as herein stated, to the extent of such prepayments only.' (Id.)

The following is the forfeiture/liquidated damages provision of the land sale contract:

'It is further agreed that if any default shall be made in the payment of said purchase price or any of the covenants and/or conditions herein provided, and if any such default shall continue for 30 days, then, after the lapse of said 30 days' period, all moneys and payments previously paid shall, at the option of the Vendor without notice or demand, be and become forfeited and be taken and retained by the Vendor as liquidated damages and thereupon this contract shall terminate and be of no further force or effect; provided, however, that nothing herein contained shall be deemed or construed to prevent the Vendor from enforcing specific performance of this agreement in the event of any default on the part of the Vendees in complying, observing and performing any of the conditions, covenants and terms herein contained. * * *.' (Id.) (Emphasis added.)

The vendor, Mary Burkowski, died in 1963. The plaintiffs in this action are the assignees (under the vendor's will) of the decedent's interests in the contract. They received their assignment from the executrix of the estate of the vendor on June 27, 1968. One year after this assignment, several of the assignees filed their complaint in this action alleging that the defendants had defaulted through non-payment.

The schedule of payments made under this contract was shown by the evidence to be as follows:

                                            Total of
                  "Date     Amount Paid  Paid Principal
                ----------  -----------  --------------
                12/01/1958    $  500.00  $   500.00
                12/25/1958       500.00    1,000.00
                03/26/1959     5,000.00    6,000.00
                04/05/1960     2,500.00    8,500.00
                05/23/1961     2,500.00   11,000.00
                04/06/1962     2,500.00   13,500.00
                01/15/1963     2,500.00   16,000.00
                06/30/1964     2,500.00   18,500.00
                02/15/1965     2,500.00   21,000.00"

No payments have been made since the last one indicated above--$15,000.00 remains to be paid on the original contract price.

In response to the plaintiff's attempt to enforce the forfeiture provision, the defendants raised the affirmative defense of waiver. The applicable rule is well established and was stated by the Court of Appeals as follows:

'Where a contract for the sale and purchase of land contains provisions similar to those in the contract in the case at bar, the vendor may waive strict compliance with the provisions of the contract by accepting overdue or irregular payments, and having so done, equity requires the vendor give specific notice of his intent that he will no longer be indulgent and that he will insist on his right of forfeiture unless the default is paid within a reasonable and specified time.' (289 N.E.2d at 771, emphasis added, citing)

'Smeekens v. Bertrand, (1969), 144 Ind.App. 656, 248 N.E.2d 48 (transfer denied); Conner v. Fisher (1964), 136 Ind.App. 511, 202 N.E.2d 572; McBride v. Griffith et al. (1962), 134 Ind.App. 12, 185 N.E.2d 22; Chambers et al. v. Boatright et al. (1961), 132 Ind.App. 378, 177 N.E.2d 600; Carr et al. v. Troutman et al. (1954), 125 Ind.App. 151, 123 N.E.2d 243; Hill v. Rogers (1951), 121 Ind.App. 708, 99 N.E.2d 270 (transfer denied); Clayton v. Fletcher Savings & Trust Co. (1927), 89 Ind.App. 431, 155 N.E. 539 (transfer denied.)'

It follows that where the vendor has not waived strict compliance by acceptance of late payments, no notice is required to enforce its provisions. (289 N.E.2d at 771, citing Conner v. Fisher, supra; Clayton v. Fletcher Savings & Trust Co., supra.)

In essence, the Court of Appeals found that there was no waiver because the vendors were obligated to accept prepayment, and, 'the payments made, although irregular in time and amount, were prepayments on the unpaid balance through and including the payment due on January 15, 1965.' (289 N.E.2d at 771.) The Court concluded that up to January 15, 1966, 'the vendors waived no rights under the contract, because they were obliged to accept prepayment.' (Id.) and that, '(t)he vendors could not have insisted on forfeiture prior to January 15, 1966, the date of the first missed payment.' (Id.) (We believe the Court of Appeals miscalculated here; the vendors could not have insisted on forfeiture until January 16, 1968.)

If forfeiture is enforced against the defendants, they will forfeit outright the sum of $21,000, or well over one-half the original contract price, as liquidated damages plus possession.

Forfeitures are generally disfavored by the law. Carr v. Troutman (1954), 125 Ind.App. 151, 123 N.E.2d 243, In fact, '. . . (e)quity abhors forfeitures and beyond any question has jurisdiction, which it will exercise in a proper case to grant relief against their enforcement.' 30 C.J.S. Equity § 56 (1965) and cases cited therein. This jurisdiction of equity to intercede is predicated upon the fact that 'the loss or injury occasioned by the default must be susceptible of exact compensation.' 30 C.J.S., supra.

Pomeroy defines this doctrine of equitable interference to relieve against penalties and forfeitures as follows:

'Wherever a penalty or a forfeiture is used merely to secure the payment of a debt, or the performance of some act, or the enjoyment of some right or benefit, equity, considering the payment, or performance, or enjoyment to be the real thing intended by the agreement, and the penalty or forfeiture to be only an accessory, will relieve against such penalty or forfeiture by awarding compensation instead thereof, proportionate to the damages actually resulting from the non-payment, or non-performance, or non-enjoyment, according to the stipulations of the agreement. The test which determines whether equity will or will not interfere in such cases is the fact whether compensation can or cannot be adequately made for a breach of the obligation which is thus secured. If the penalty is to secure the mere payment of money, compensation can always be made, and a court of equity will relieve the debtor party upon his paying the principal and interest . . .

'(The granting of relief in such circumstances is based on the ground that it is wholly against conscience to say that because a man has stipulated for a penalty in case of his omission to do a particular act--the real object of the parties being the performance of the act--if he omits to do the act, he shall suffer a loss which is wholly disproportionate to the injury sustained by the other party.)' Pomeroy, Equity Jurisprudence, § 433, 5th Edition (1941). (Emphasis added.)

Paragraph 17 of the contract, supra, provides that all prior payments 'become forfeited and be taken and retained by the Vendor as liquidated damages.' 'Reasonable' liquidated damage provisions are permitted by the law. See 22 Am.Jur., 2d Damages § 212 (1965). However, the issue before this Court, is whether a $21,000 forfeiture is a 'reasonable' measure of damages. If the damages are unreasonable, i.e., if they are disproportionate to the loss actually suffered, they must be characterized as penal rather then compensatory. See Melfi v. Griscer Industries, Inc. (1967), 141 Ind.App. 607, 231 N.E.2d 54; Czeck v. Van Helsland (1968), 143 Ind.App. 460, 241 N.E.2d 272. Under the facts of this case, a $21,000 forfeiture is clearly excessive.

The authors of American Law Reports have provided an excellent analysis of forfeiture provisions in land contracts:

'As is frequently remarked, there is no single rule for the determination of whether a contractual stipulation is one for liquidated damages or a penalty, each case depending largely upon its own facts and equities, and this apothegm is fully applicable to the decisions involving provisions in land contracts for the forfeiture of payments.

'There is a plethora of abstract tests and criteria for the determination of the nature of a contractual...

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