Skendzel v. Marshall

261 Ind. 226, 301 N.E.2d 641 (1973)

 

RULE:

Under a typical conditional land contract, the vendor retains legal title until the total contract price is paid by the vendee. Payments are generally made in periodic installments. Legal title does not vest in the vendee until the contract terms are satisfied, but equitable title vests in the vendee at the time the contract is consummated. When the parties enter into the contract, all incidents of ownership accrue to the vendee. The vendee assumes the risk of loss and is the recipient of all appreciation in value. The court holds, consistent with the above notions of equitable ownership, that a land contract, once consummated constitutes a present sale and purchase. The vendor has, in effect, exchanged his property for the unconditional obligation of the vendee, the performance of which is secured by the retention of the legal title. The court, in effect, views a conditional land contract as a sale with a security interest in the form of legal title reserved by the vendor. Conceptually, therefore, the retention of the title by the vendor is the same as reserving a lien or mortgage. Realistically, vendor-vendee should be viewed as mortgagee-mortgagor. To conceive of the relationship in different terms is to pay homage to form over substance.

FACTS:

The assignees of a deceased vendor's interest in a contract filed suit against the vendees to obtain possession of certain real estate through the enforcement of a forfeiture clause in a land sale contract. In their complaint, they alleged that the vendees had defaulted through non-payment. In response to the attempt to enforce the forfeiture provision, the vendees raised the affirmative defense of waiver. The assignees suffered a negative judgment, from which they appealed. On appeal, the appellate court held that the vendees had breached the contract, and that assignees had not waived their right to enforce the contract's forfeiture provisions. The case was appealed to the Supreme Court of Indiana.

ISSUE:

Was forfeiture against the vendees proper?

ANSWER:

No

CONCLUSION:

The court noted that if forfeiture was enforced against defendants, they would forfeit outright the sum of $ 21,000, or well over one-half the original contract price, as liquidated damages, plus possession. As such, the court concluded that the forfeiture was not a reasonable measure of damages, rather the forfeiture was clearly excessive. The court further concluded that the $ 21,000 forfeiture as liquidated damages was inconsistent with generally accepted principles of fairness and equity. Defendants had acquired a substantial interest in the property, which, if forfeited, would result in substantial injustice. Lastly, the court ruled that judicial foreclosure of a land sale contract was an appropriate equitable remedy.

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