Opinion ID: 2001616
Heading Depth: 2
Heading Rank: 2

Heading: Repossession Under Contract For Deed.

Text: Under both causes of action, Groseclose alleges a right to invoke a forfeiture clause in a contract for deed to repossess the property without giving BankWest or Assignees a right to cure the default. Groseclose initially sought repossession under SDCL ch. 21-16, [2] Forcible Entry and Detainer, when bringing the action in Sully County. However, in its order of summary judgment for Buyers, the trial court held that Groseclose improperly brought the action under forcible entry and detainer. See SDCL 21-16-4 (no other action can be brought with one for Forcible Entry and Detainer). In its April 27, 1994, ruling from the bench, the judge stated: This Case does not fit under the forcible entry [and] detainer statutes where it was brought. There's no ... lessor-lessee relationship and there's no force or deception involved. The forcible entry and detainer statutes involve only the right to possession and there's more involved in this case than just the right to possession of the property. There's no relationship in this case between the forfeiture clause in the contract and the liquidated damage that might be provable and, therefore, the Court finds that if it were to allow forfeiture of the property and simply repossession that it would work as a forfeiture which is ... something that the law does not want to do. We agree with the trial court that the heart of this cause of action is an attempt to invoke a forfeiture of the property under the contract for deed. The general rule of this court is that the law abhors a forfeiture. Ford v. Hofer, 79 S.D. 257, 261, 111 N.W.2d 214, 216 (1961). Forfeitures are considered as odious in the law, and are not favored by the courts. Courts of equity will seize upon slight circumstances to relieve a party therefrom. Id. (citations omitted). Consistent with this notion, SDCL 53-9-4 and -5 reaffirm the law's disdain for forfeitures. SDCL 53-9-4 provides: Penalties imposed by contract for any nonperformance thereof are void. This section does not void obligations penal in form such as heretofore have been commonly used, but it voids their penal clauses. SDCL 53-9-5, allows an exception to the general rule against forfeitures only when the contract clearly contains a liquidated damages clause. The language of that section reads: Every contract in which amount of damage or compensation for breach of an obligation is determined in anticipation thereof is void to that extent except the parties may agree therein upon an amount presumed to be the damage for breach in cases where it would be impracticable or extremely difficult to fix actual damage. Whether a forfeiture provision is a liquidated damages provision or an unenforceable penalty is a question of law for the court. Safari, Inc. v. Verdoorn, 446 N.W.2d 44, 46 (S.D.1989). The burden of proving that a forfeiture clause is valid as a liquidated damages clause is upon the party relying on the clause. Hofer v. W.M. Scott Livestock Co., 201 N.W.2d 410 (N.D.1972). We do not find Groseclose has carried this burden. In Safari, we stated that a liquidated damages provision will only be upheld where (1) damages in the event of breach are incapable of accurate estimation at the time the contract was made; (2) there was a reasonable attempt by the parties to fix compensation; and (3) the amount stipulated bears a reasonable relation to probable damages and is not disproportionate to any damages reasonably to be anticipated. Id. at 46. In the present case, the contract language is silent with regard to impracticality or difficulty in assessing actual damages. Id.; SDCL 53-9-5. The language of the contract clause at issue provides: In the case of the failure of the Purchasers to make any of the payments or any part thereof, or to perform any of the covenants on Purchaser's part hereby made and entered into, then the whole of said payments shall become immediately due and payable [3] and this contract shall, at the option of the Sellers, be forfeited and determined, and thereupon, Sellers shall be fully reinvested with all right, title and interest hereby agreed to be conveyed, and Purchasers shall forfeit all payments by Purchasers made on this contract and shall further forfeit all right, title and interest in and to all improvements located thereon, and such payments and improvements shall be retained by Sellers in full satisfaction and in liquidation of all damages by Sellers sustained, and Sellers shall have the right to re-enter and take possession of the premises as aforesaid. (Emphasis added.) This forfeiture clause is valid only if it meets each of the requirements set forth in Safari; clearly it is not a liquidated damages provision (despite the mere use of the word liquidation). Indeed, Groseclose did not argue or present any evidence that the forfeiture clause was valid as a liquidated damages provision. If Groseclose chose to pursue a remedy which would allow her to retake possession of the property, she should have foreclosed on the property under SDCL ch. 21-50, yet she chose an alternative route, possibly because foreclosure would insure Buyers a right of redemption. SDCL 21-50-3 (contract purchaser has a right to redeem within minimum ten-day period). Further, the record is undisputed that Groseclose sent notice of default on February 23, 1994. On February 24, 1994, S. Garrett tried to cure the default by tendering a check in the amount of the delinquent taxes to Groseclose, but Groseclose rejected the money. At the time of the breach, approximately $250,000 of the purchase price had been paid over a twelve-year period. BankWest also offered to pay the full-remaining balance of just over $50,000; Groseclose refused. Under such circumstances where the contract has been nearly completed, the mere failure of the buyer to pay an amount on the date due, when coupled with an immediate offer to cure when notified of the default, does not constitute a material breach, and the seller is not entitled to refuse to accept an offer to cure default. See Barnes v. Clement, 12 S.D. 270, 274-75, 81 N.W. 301, 302 (1899). See also Dusek v. Reese, 80 S.D. 96, 119 N.W.2d 656 (1963) (breach must be material to rescind contract). In essence, Groseclose claims there exists an automatic right to repossess under a forfeiture clause in a contract for deed, and that the buyer is not entitled to an opportunity to cure the default. Groseclose argues South Dakota case law to support this conclusion. Middleton v. Klingler, 410 N.W.2d 184 (S.D.1987) (rights of parties on default of contract for deed not limited by reservation of remedy); Sweet v. Purinton, 40 S.D. 17, 166 N.W. 161 (1918) ( overruled on other grounds, First Federal Sav. & Loan Ass'n v. Wick, 322 N.W.2d 860, 862 (S.D.1982) (judgment terminating defaulting vendee's interest in land must include time period in which to cure default); Coleman v. Stalnacke, 15 S.D. 242, 88 N.W. 107 (1901) (defaulting vendee entitled to amount by which value of improvements exceeds value of use and occupation, but not entitled to possession of property where vendee did not offer to pay balance of contract); Barnes, 12 S.D. 270, 81 N.W. 301 (where vendor rejected defaulting vendee's offer to pay balance of contract, vendor not entitled to invoke forfeiture provision; vendor entitled only to difference between rental value and vendee's improvements to land). Although it is true that these cases provide a seller of land the opportunity to repossess the property as one of the available remedies, they do not establish a right to automatic repossession while denying the defaulting purchaser an opportunity to cure the breach. In fact, each case is distinguishable from the facts here because they reiterate the necessity of allowing the defaulting party an opportunity to ameliorate the default and reaffirm the contract. It is a standing rule that a forfeiture shall not bind, when a thing may be done afterwards, or any compensation may be made. Forfeitures have always been considered as odious in the law[.] Barnes, 12 S.D. at 277, 81 N.W. at 303. Therefore, in order to elect repossession as the remedy of choice under a contract for deed, the forfeiture clause, in and of itself, must be valid, and the defaulting party must be allowed an opportunity to cure the default. We agree with the trial court that it would be unconscionable to allow repossession of this property without allowing an opportunity to cure the breach where the bulk of the contract price has been paid. The parties have the option to limit available remedies in their contract; however, those choices cannot lead to automatic forfeiture without any avenue to cure the default. Because the contract provided no means of curing the default, and the liquidated damages clause was not valid, we agree with the trial court that Buyers were entitled to relief. We affirm the trial court's grant of specific performance of the contract to Buyers. We have considered the other issue raised by Groseclose and, in light of our decision as set forth above, find it to be without merit. We affirm in all respects. SABERS, KONENKAMP and GILBERTSON, JJ., and RONALD K. MILLER, Circuit Judge, concur. RONALD K. MILLER, Circuit Judge, sitting for ROBERT A. MILLER, Chief Justice, disqualified.