Case Name: ELSASSER, Appellant, v. WILCOX et ux, Respondents
Court: Oregon Supreme Court
Jurisdiction: Oregon
Decision Date: 1979-06-26
Citations: 286 Or. 775
Docket Number: No. A 7701-00402, SC 25572
Parties: ELSASSER, Appellant, v. WILCOX et ux, Respondents.
Judges: HOWELL, J.
Reporter: Oregon Reports
Volume: 286
Pages: 775–787

Head Matter:
Argued December 6, 1978;
reargued February 6,
reversed June 26,
petition for rehearing denied July 24, 1979
ELSASSER, Appellant, v. WILCOX et ux, Respondents.
(No. [ A XXXX-XXXXX ], SC 25572)
596 P2d 974
Harry R. Kraus, Portland, argued and reargued the cause and filed a brief for appellant.
Marshall C. Cheney, Portland, argued and rear-gued the cause for respondents. With him on the brief was Donald O. Costello, Portland.
HOWELL, J.
Denecke, C.J., specially concurring opinion.
Linde, J., specially concurring opinion.
Holman, J., dissenting opinion.

Opinion:
HOWELL, J.
Plaintiff filed a declaratory judgment proceeding to determine the rights of the parties under a contract for the sale of real property between plaintiff as purchaser and defendants as sellers. Defendants, by their answer, asked for a judgment declaring the contract to be null and void because of plaintiff's failure to make payments required of him. Plaintiff appeals from a judgment in favor of defendants.
The negotiations resulting in the contract under consideration began in 1971 when the parties executed an option wherein plaintiff was to purchase a portion of the property involved. Plaintiff made three payments of $7,500 each on the option. In 1974 the parties executed a contract of sale regarding the entire property. Plaintiff-purchaser did not make the first payment of $62,400 due in November, 1975, and the parties terminated the contract by agreement. In November, 1975, the parties executed a new agreement and plaintiff paid $10,000 down. The total purchase price was $350,000, payable over six years, beginning with a payment of $62,400 plus interest on or before November 15, 1976. The contract provided for release of parcels of the property upon certain payments being made.
The contract also provided for certain remedies to be available to the vendors in the event of a default by plaintiff:
" [i]n case the second party shall fail to make the payments aforesaid, or any of them, punctually and upon the strict terms and at the times above
specified, or fail to keep any of the other terms or conditions of this agreement, time of payment and strict performance being declared to be of the essence of this agreement, then the first party shall have the following rights:
"1. To declare this contract null and void.
"2. To declare the whole unpaid principal balance of said pin-chase price with the interest thereon at once due and payable, and/or
"3. To foreclose this contract by suit in equity, and in any of such cases, all the rights and interest hereby created or then existing in favor of the second party derived under this agreement, shall utterly cease and determine, and the premises aforesaid shall revert and revest in the first party without any declaration of forfeiture or act of re-entry, or without any other act by first party to be performed and without any right of the second party of reclamation or compensation for money paid or for improvements made as absolutely, full and perfectly as if this agreement had never been made."
On October 20, 1976, plaintiff advised defendants by mail that he was having difficulty in securing a bank loan on lots being developed and "at this writing I don't feel I could make the payment" due on November 15, 1976. The payment was not made by November 15.
On November 22, 1976, defendants wrote to plaintiff stating that "we hereby declare this contract null and void, effective this date."
On or about December 28,1976, by letter addressed to Title Insurance Company of Oregon, plaintiff delivered to it his personal uncertified check in the sum of $86,900 (representing the initial principal payment and accrued interest) payable to defendants, together with a description of certain real property, with the following instructions:
"You are instructed to deliver the check to Mr. and Mrs. Wilcox upon deposit for recording a Warranty Deed from Glenn H. and Joan M. Wilcox, husband and wife, to Fred Elsasser, Jr., covering the property described and referred to above."
It was stipulated by the parties that:
"The acreage designated for release by plaintiff has improvements located thereon having an appraised value for tax purposes of $39,140.00. The contract provides that the payment required for release of any designated acreage shall include, in addition to the land price computed by formula, the then appraised value for tax purposes of said improvements. No tender other than that described in [the letter dated December 28, 1976] has been made to defendants."
On January 3, 1977, defendants' counsel wrote to plaintiff, stating again that the contract is "hereby declared null and void effective this date."
On these facts, the trial court entered a judgment declaring the contract to be terminated. Plaintiff appeals, contending that defendants' declaration of forfeiture was ineffective because defendants did not give plaintiff notice and an opportunity to cure the breach.
This court has held in numerous cases that where a contract gives a vendor alternative remedies upon default by the purchaser, notice and an opportunity to cure the default is required by law. Both Develop. v. John Gen'l Contr., 263 Or 561, 503 P2d 493 (1972); Morrison v. Kandler, 215 Or 489, 334 P2d 459 (1959); Howard v. Jackson, 213 Or 447, 324 P2d 757 (1958); Zumstein v. Stockton et ux, 199 Or 633, 264 P2d 455 (1953); Grider v. Turnbow, 162 Or 622, 94 P2d 285 (1939); Epplett v. Empire Inv. Co., Inc., 99 Or 533, 194 P 461, 194 P 700 (1921). The source of the rule requiring notice when the vendor has "options" was first stated in Epplett v. Empire Inv. Co., Inc., supra:
" Since contracts like the one here are not self-executing, the law by implication introduces into such contracts a provision that the right of forfeiture should be exercised only after first giving notice for a reasonable period of time, and, therefore, the right to forfeiture can not be fully exercised unless: (1) the vendor gives reasonable notice; and (2) the purchaser fails to pay within the time fixed by the notice. 99 Or at 541-42 (emphasis added).
In Zumstein v. Stockton, supra, we considered a contractual provision quite similar to the present one. The contract in Zumstein gave the vendor alternative rights in the event of default by the purchaser, one of which was the "right to declare the agreement null and void." We said:
« Under any contract which gives the vendor a right to declare a forfeiture, that is, a right which he may but need not exercise, the forfeiture can be effectuated only after reasonable notice given. This must be done whether or not the time-essence clause has been waived. Epplett v. Empire Investment Co., 99 Or 533, 194 P 461; Grider v. Turnbow, supra [162 Or 622, 94 P2d 285 (1939)]. A forfeiture under a land contract such as the one at bar is not automatic on the occurrence of default. The contract gave the vendor the 'right to declare this agreement null and void or foreclose by strict foreclosure in equity.' Since the vendor had alternative rights the forfeiture could not be automatic. Some action by the vendor would be required to manifest his choice between the alternative rights, and this must be true regardless of the additional provision that in either of such cases 'all the right of the second party shall utterly cease and thepremises aforesaid shall revert and revest in the first party without any declaration of forfeiture or act of re-entry, or without any other act *.'*" 199 Or at 642. (Emphasis added.)
The defendant relies on Edwards v. Wirtz, 167 Or 625, 118 P2d 114 (1941), and Maffet v. Or & Cal R. Co., 46 Or 443, 80 P 489 (1905). It is questionable whether those cases actually stand for the proposition that a forfeiture provision may operate without notice to the defaulting vendor. We need not decide that matter, however, because those cases, unlike the present case, did not involve contracts in which the vendor had alternative remedies upon default, and therefore do not control the present case.
We hold that our decision in this case is controlled by our previous decisions in Zumstein and Both, and that a declaration of forfeiture under the terms of a contract such as this is effective only if the vendor first gives the pin-chaser notice and an opportunity to cure the breach. The defendants in the present case did not provide plaintiff with such notice, but instead wrote plaintiff on November 22, 1976, stating that the contract was "null and void, effective this date. " (Emphasis added.) We have held that such a notice declaring that a forfeiture is then effected rather than stating that a forfeiture will be effected in the future unless payment is made within a prescribed time is a breach of the implied stipulation to give reasonable notice and does not effect a forfeiture. Morrison v. Kandler, supra; Howard v. Jackson, supra; Epplett v. Empire Inv. Co., Inc., supra.
Because the defendants did not give plaintiff notice that a forfeiture will be effected and an opportunity to correct the default during the period given in the notice before declaring a forfeiture, the defendants are not entitled to prevail.
Reversed. No costs to either party.
We note that the letter also advised plaintiff that "foreclosure proceedings may be necessary" in the event plaintiff did not execute a quitclaim deed.
In both Edwards and Maffet, the court found that the forfeiture provision had been waived. Consequently, the court did not have to decide whether or not a forfeiture could occur without notice and a reasonable opportunity to cure. See also, Spencer, Remedies Available Under a Land Sale Contract, 3 Will L J 164, 180 n. 134 (1965), where the author suggests that under cases decided subsequent to Edwards, the forfeiture provision in that case would not have been construed as self-executing.
The author of this opinion, speaking for himself only and not for the other members of the court, questions whether or not forfeiture provisions should be given effect even where the purchaser has notice and an opportunity to cure the breach. In my view, a strong argument can be made that forfeitures may constitute penalties for breach of contract, since the vendor's remedy upon default by the purchaser may bear no reasonable relation to anticipated damages. See Corbin, The Bight of a Defaulting Vendee to the Destitution of Instalments Paid, 40 Yale L J 1013, 1029 (1931); Note, Forfeiture and the Installment Land Contract, 35 Brooklyn L Rev 83, 87 (1968) ("we are left with the cold proposition that the more one tries to meet his obligation, the more severely will he be punished for his breach"). This court has long subscribed to the rule that contractual provisions imposing a penalty upon a breaching party are void as against public policy. Dean Vincent, Inc. v. McDonough, 281 Or 239, 574 P2d 1096 (1978); Wright v. Schutt Construction, 262 Or 619, 500 P2d 1045 (1972); Harty v. Bye, 258 Or 398, 483 P2d 458 (1971); Medak v. Hekimian, 241 Or 38, 404 P2d 203 (1965).
The argument that "freedom of contract" requires judicial recognition of forfeiture provisions is, in my opinion, a false issue. Freedom of contract has never been interpreted to mean that parties should be allowed to determine their own remedies. As Calamari & Perillo have observed, "Remedies are provided by the state and are defined by public rather than private law." Calamari & Perillo, The Law of Contracts 564 (2d ed 1977). See also, Macneil, Power of Contract and Agreed Demedies, 47 Cornell L Q 495 (1962).
La Stinemeyer v. Wesco Farms, Inc., 260 Or 109, 487 P2d 65 (1971), this court stated: "It has been our policy to encourage sellers of land to enforce their contracts in equity when the purchaser has defaulted in his performance." 260 Or at 115-16.
As of 1978, thirteen states had enacted legislation regulating the conditions under which forfeiture will be permitted, and four states had attempted to eliminate the harsh nature of the forfeiture remedy. Comment, Demedying the Inequities of Forfeiture in Land Installment Contracts, 64 Iowa L Rev 158 (1978).