No. 92-029
IN THE SUPREME COURT OF THE STATE OF MONTANA
DAUGHERTY CATTLE CO., a partnership
consisting of EMERALD DAUGHERTY,
WILLIAM DAUGHERTY, JOHN DAUGHERTY, JR.;
EMERALD DAUGHERTY; WILLIAM EARL DAUGHERTY;
and JOHN EMERALD DAUGHERTY, JR., T ., -
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Plaintiffs and Respondents, &
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GENERAL CONSTRUCTION COMPANY, a North
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MEYER CONSTRUCTION CO., and doing
business in Montana as GENERAL
CONSTRUCTION COMPANY OF NORTH DAKOTA,
Defendant and Appellant.
APPEAL FROM: District Court of the Thirteenth Judicial ~istrict,
I n and for the County of Yellowstone,
The Honorable Maurice R. Colberg, Jr., Judge
presiding.
COUNSEL OF RECORD:
For Appellant:
Stewart R. Kirkpatrick, Murphy & Kirkpatrick,
Billings, Montana
For Respondent:
Allan Karrell and John Bohyer, Crowley, Haughey,
Hanson, Toole & Dietrich, Billings, Montana
Submitted on Briefs: June 25, 1992
Decided: September 22, 1992
Filed:
Justice Fred J. Weber delivered the Opinion of the Court.
Defendant, General Construction Company, appeals from the
summary judgment ruling of the District Court of the Thirteenth
Judicial District, Yellowstone County, in favor of plaintiffs. We
affirm.
The issues for our review are:
1 Whether the District Court erred by refusing to consider
.
reasonable rental value of the property subject to a land contract
for purposes of computing damages upon foreclosure by the seller.
2. Whether Montana's anti-forfeiture statute, S 28-1-104,
MCA, applies to p r o h i b i t the seller from declaring a forfeiture
when the purchaser tenders a portion of the property back to the
seller as lafull cornpensati~n'~
for the balance owing on the
contract.
On February 13, 1981, Meyer Construction Company, a
predecessor company of defendant General Construction Company
(General), and the plaintiffs Daugherty Cattle Co,, a partnership
consisting of Emerald Daugherty, William Daugherty and John
Daugherty, Jr.; Emerald Daugherty; William Earl Daugherty; and John
Emerald Daugherty, Jr. (Daugherty), as sellers, entered into a
written contract for deed for the sale and purchase of real
property located on the outskirts of Billings in Yellowstone
County, Montana. The purchase price of the property was
$1,195,000.00 plus interest at the rate of nine percent per annum.
General and its predecessor made annual payments as scheduled until
1987, when the contract was amended. On July 8, 1987, General and
2
Daugherty agreed to revise the payment schedule and reamortize the
unpaid principal of $422,500.00. The amendment lowered the
payments and split them, with interest payments (continuing at nine
percent) and principal payments due on different dates during the
year. The contract also recited the name change from Meyer
Construction Company to General Construction Company.
General continued to make payments as scheduled until 1989,
when General failed to pay the scheduled payment due on J u l y 15,
1989. On October 10, 1989, Daugherty sent by certified mail a
written notice of default giving General thirty days within which
to make payment, as required by the contract. In early November,
1989, Daugherty extended the default period for sixty days beyond
November 9, 1989.
On January 8, 1990, General made an "offer of performancen in
writing, which General considered to be full performance and
compensation under the contract. In its offer, General offered to
convey back to Daugherty an 85-acre portion of the property
(approximately 47% of the land covered by the contract) together
with payments already made totalling $1,273,290.00, in return for
termination of the contract and retention of the remaining 53% of
the land. This would have left Daugherty with the portion of the
land it had leased back from General as farmland since 1981 and
would have left General with the portion on which it mined gravel
for construction purposes.
On January 31, 1990, also pursuant to the contract, Daugherty
sent by certified mail a tWotice of Continued Default and
Acceleration of Remaining Purchase P r i ~ e , ~
notifying General that
it was accelerating the entire contract balance and giving General
thirty days to pay the accelerated balance in full. Again General
failed to make any payment on the contract. Daugherty, electing to
terminate the contract, sent to General a "Notice of Termination of
Contract for Deedw dated July 18, 1990.
General refused to execute special warranty deeds to reconvey
the property to Daugherty and refused to deliver possession to
Daugherty to effect the termination of the contract. Daugherty
filed this action to quiet title and to obtain possession of the
property.
The District Court granted Daughertyts motion for summary
judgment on the quiet title and ejectment claims, rejected
General's claim that termination and forfeiture were not
enforceable remedies under the contract and allowed Daugherty to
retain all monies previously paid by General and its predecessor.
The District Court refused to apply Montana's anti-forfeiture
statute, 5 28-1-104, MCA, because General's tender of a portion of
the property did not constitute "full compensation" as required by
the statute. From this judgment, General appeals.
Did the District Court err by refusing to consider reasonable
rental value of the property subject to a land contract for
purposes of computing damages upon foreclosure by the seller?
The appellant, General, contends that there are genuine issues
of fact and that evidence relating to these factual issues should
have been introduced into evidence at a trial. Specifically,
General claims that a clause included in the parties' contract
requires the court to determine the relationship between payments
retained and actual damages suffered by Daugherty and to determine
whether the retention of contract payments constitutes a penalty
rather than damages. The pertinent clause is underlined in the
following excerpt from Paragraph 5 of the contract for deed:
(1) If Buyer fails to cure such default or breach
within the aforesaid 30 day period, the Seller may
then declare the outstanding balance of the
purchase price together with all other unpaid
obligations of the Buyer undertaken in this
contract due and payable within an additional 30
days. If the outstanding balance of the purchase
price together with all other unpaid obligations of
the Buyer are not paid within the second 30 day
period, the Seller may either:
(a) declare this contract terminated. In the
event of such termination, Buyer agrees
on demand to surrender possession of the
property, and any improvements thereon
immediately and peaceably, and to execute
and deliver such instruments as Seller
may require to evidence of record the
termination of this contract and Buyer's
interest in the contract and real
property, and Seller may retain all
payments made hereunder as reasonable
rental for the use of the ~ r o ~ e r t v as
and
liauidated damacres, . . . (Emphasis
supplied.)
General claims there is no evidence that the damages Daugherty
recovered have any relationship to the actual damages suffered by
Daugherty. General has made payments of principal and interest
totalling $1,242,447.50 on the original contract amount of
$1,195,000.00. The amounts appliedto principal total $857,000.00,
leaving a principal balance of $338,000.00. General further claims
that liquidated damages must bear a reasonable relationship to the
actual damages or such damages will constitute an invalid penalty-
Daugherty contends t h a t t h e language quoted above from Paragraph
5 of the contract is neither ambiguous nor uncertain in any sense
and maintains that to accept General's argument would essentially
convert the contract from a purchase agreement to a lease, as
noted by the District Court.
We agree with the District Court's assessment relating to the
result which would ensue if we were to depart from longstanding
interpretation of land sale contract provisions. In effect, the
result would be to rescind the contract at the whim of the
defaulting purchaser whose wrongdoing caused the vendor to
terminate the contract.
Long ago, in Cook-Reynolds Co. v. Chipman (1913), 47 Mont.
289, 133 P - 694, the defendant made a similar argument against a
forfeiture of a contract for deed. This Court noted that in an
action to terminate the contract for breach, "the remedies afforded
by the contract will be enforced unless they impinge upon other
rules of equity or 1 w I
a.' Cook-Reynolds, 133 P. at 697. In Cook-
Revnolds and subsequent forfeiture cases, this Court has
consistently upheld contract provisions such as the clause in
Paragraph 5 which allows the seller to retain a l l payments "as
reasonable rental for the use of the property and as liquidated
damages.ffi
See, e.g., Joy v. Little (l96O), 138 Mont. 110, 354 P.2d
1035; and Erickson v. First Natll Bank of Minneapolis (1985), 215
Mont. 350, 697 P.2d 1332.
At the time of contracting, Daugherty and General's
predecessor agreed that the payments already made under the
contract terms at the time of a default by the purchaser would be
reasonable rental and proper liquidated damages. General contends
that Erickson, 697 P.2d at 1338, requires a court to hear evidence
of a reasonable relationship between the actual damage suffered and
the liquidated damage claimed. In Erickson, the trial court found
that the reasonable rental of the property was $114,750.00. The
purchaser had paid only $154,751.67 on an $800,000.00 contract and
had been in possession of the property for over a year and a half.
The trial court found that the amount forfeited was reasonable, a
finding this Court affirmed, noting that, w[s]ure3y Starhaven did
not intend that it should remain in possession for so long and pay
nothing for the use of the property." Erickson, 697 P.2d at 1338.
prickson, however, does not require a judicial determination that
the amount forfeited was a reasonable rental.
S e c t i o n 28-2-721, MCA, allows parties to a contract to agree
to damages in advance of a breach:
When provision f i x i n g liquidated damages v a l i d . ...
( 2 ) The parties to a contract may agree therein upon an
amount which shall be presumed to be an amount of damage
sustained by a breach thereof when, from the nature of
the case, it would be impracticable or extremely
difficult to fix the actual damage.
General argues that this statute, when applied to the facts of
this case, clearly shows that the actual damages have no
relationship to the liquidated damages and therefore the contract
terms should be invalidated. The District Court ruled that
plaintiff was not required to return to the defendant the
difference, if any, between the amount paid by the defendant and
what evidence would show the reasonable rental value of the land to
have been. In pertinent part the District Court stated:
The later Montana case of Burqess v. Shi~let,230 Mont.
387, 7 5 0 P.2d 460 (1988) involved a default by a
purchaser in contract payments. The Montana Supreme
Court ordered forfeiture of all amounts paid by the
purchaser and termination of the contract. There was no
consideration of a reasonable rental value during the
period of the buyer1 holding of the property.
s ... The
court stated at 2 3 0 Mont. 390:
When a purchaser enters into a contract for deed with a
seller, he or she runs the risk of defaulting on the
required payments and facing the consequences of losing
the property along with forfeiting the amount already
paid. If this produces a harsh or unwanted result, it is
for the legislature to remedy and not the job of this
Court to change the plain meaning of the contract."
Later the Court stated:
"The default provisions under the contract for deed
spells [sic] out the remedies available to appellants."
After a further discussion, the District Court concluded that
plaintiff and defendant entered into this contract with explicit
default language which allows the relief requested by the plaintiff
and that the court should not interpret the contract to be an
involuntary lease. We agree with the analysis and conclusion of
the District Court.
We hold that the District Court did not err by refusing to
hear evidence relating to the reasonable rental value of the
property subject to the land contract for purposes of computing
damages.
Does Montana's anti-forfeiture statute, 5 28-1-104, MCA, apply
to prohibit the seller from declaring a forfeiture when the
purchaser tenders a portion of the property back to the seller as
"full compensation'' for the balance owing on the contract?
Section 28-1-104, MCA, provides:
Relief from forfeiture. Whenever by the terms of an
obligation a party thereto incurs a forfeiture or a loss
in the nature of a forfeiture by reason of his failure to
comply with its provisions, he may be relieved therefrom
upon making full compensation to the other party, except
in case of a grossly negligent, willful, or fraudulent
breach of duty.
In order for 3 28-1-104, MCA, to apply, the party requesting
relief from forfeiture must tender full compensation to the vendor
as a condition precedent to relief. Sun Dial Land Co. v. Gold
Creek Ranches, Inc. (1982), 198 Mont. 247, 251, 645 P.2d 936, 939.
General contends that its offer to reconvey 47 percent of the
land to Daugherty, at a time when General was in default and during
a period which was a 60-day extension of the time to cure the
default, constituted "full compensation" as required by 5 28-1-104,
MCA. In Eigeman v. Miller (1987), 229 Mont. 28, 32, 745 P.2d 320,
323, this Court reversed the district court's conclusion that the
purchasers proved their right to relief under the anti-forfeiture
provision without tendering full compensation of the entire
remaining contract balance. We have repeatedly required the
defaulting party under a contract for deed to tender the entire
outstanding principal balance in order to obtain relief from
forfeiture in equity. See, e.g., Sharp v. Holthusen (1980), 189
Mont. 469, 616 P.2d 374 (defendants tendered entire amount due plus
personal fees, expenses and attorney fees of plaintiff to date):
and Parrot v. Heller (1976)' 171 Mont. 212, 557 P.2d 819 (tendering
entire contract balance plus interest prevented forfeiture). "The
anti-forfeiture statute allows the defendants to make full payment
of interest and attorney fees for the default, and allows the
contract to be enforced." Shar~,616 P.2d at 378. General's
tender of 47 percent of the property in exchange for Daugherty's
cancellation of the remainder owed on the contract was at best an
offer to modify the contract--an offer not accepted by Daugherty.
It falls short of the full compensation required under 5 28-1-104,
MCA, which is the entire principal balance plus interest.
General's offer of performance was a last ditch effort to hold on
to a portion of the property by voluntarily forfeiting 47 percent
of the property at a time when Daugherty, if the default was not
cured, could soon claim 100 percent of the land. General's offer
of performance is not full compensation of the sort contemplated
under Montana's anti-forfeiture statute.
We hold that Montana's anti-forfeiture statute, 5 28-1-104,
MCA, did not prohibit the seller from declaring a forfeiture when
the purchaser tendered a portion of the property back to the
seller. Such offer of performance was not full compensation for
the remaining balance of the contract price.
Affirmed.
We Concur:
September 22, 1992
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
Stewart R. Kirkpatrick
MURPHY & KIRKPATRICK
300 Western Federal Savings Building
2929 Third Avenue North
Billings, MT 59101
Allan Karell
John Bohyer
CROWLEY, HAUGHEY, HANSON, TOOLE & DIETRICH
P.O. Box 2529
Billings, MT 59103
ED SMITH
CLERK OF THE SUPREME COURT
STATQ OF MONTANA