Alderman v. Davidson
954 P.2d 779, 326 Or. 508 (1998)
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Rule of Law:
A seller's repeated acceptance of late installment payments on a real property note, coupled with constructive knowledge of the buyer's failure to pay property taxes as required by the trust agreement, waives the seller's right to strictly enforce a "time is of the essence" clause for the tax default without first providing notice and a reasonable opportunity to cure.
Facts:
- In 1989, Buyer purchased 120 acres of land in Lake County, Oregon, from Seller, signing a note for $24,000, payable in monthly and bi-monthly installments.
- Buyer and Seller entered into a trust agreement which stipulated that Buyer must make timely payments on the note to an escrow agent and promptly pay all property taxes, delivering receipts to Seller.
- The trust agreement included a "time is of the essence" clause for all payments and performances, granting Seller the right to accelerate the note and initiate foreclosure proceedings for defaults, or to pay overdue taxes herself and add that amount to the balance due.
- Virtually from the outset, Buyer established a pattern of making late installment payments, which Seller repeatedly accepted over the years despite sending letters complaining about the practice.
- Buyer neglected to pay property taxes for the years 1990, 1991, 1992, and 1993, and consequently did not send tax receipts to Seller as required by the trust agreement.
- On January 28, 1994, Seller sent a letter to Buyer notifying her of arrearages in both installment payments and taxes, demanding payment by March 1, 1994, or threatening foreclosure; however, Buyer never received this letter.
- In April and early May 1994, Buyer sent four installment payments to the escrow agent, bringing her account current by May 9, 1994. The escrow agent accepted and forwarded these payments to Seller, who held them for approximately a month before cashing them.
- Seller paid the delinquent taxes in May 1994, bringing them current, and subsequently cashed a refund check issued to her by the tax assessor at Buyer's direction after Buyer also attempted to pay the overdue taxes.
Procedural Posture:
- Seller filed a complaint for judicial foreclosure against Buyer in the circuit court (trial court) on May 16, 1994, alleging default in installment payments.
- Seller amended the complaint on May 23, 1994, to include an allegation of default in the nonpayment of taxes.
- At the conclusion of the trial, the circuit court held that by accepting payments after the notice of foreclosure, Seller waived her right to foreclose, and dismissed the foreclosure action.
- Buyer appealed the denial of attorney fees, and Seller cross-appealed to the Oregon Court of Appeals, assigning as error the trial court's failure to order foreclosure under the trust agreement.
- The Oregon Court of Appeals reversed the trial court's decision, holding that Seller had waived the "time is of the essence" clause for installment payments but not for tax payments, as she did not accept late payments with knowledge of the tax default, and remanded with instructions to enter a judgment of foreclosure.
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Issue:
Does a seller's repeated acceptance of late installment payments on a real property note, coupled with constructive knowledge of the buyer's failure to pay property taxes as required by the trust agreement, waive the seller's right to accelerate the balance due and foreclose based on the tax default without first providing notice and an opportunity to cure?
Opinions:
Majority - Gillette, J.
Yes, a seller's conduct of repeatedly accepting late installment payments, coupled with constructive knowledge (through non-receipt of required tax receipts) of the buyer's consistent failure to pay property taxes, waives the seller's right to declare a default and foreclose based on the tax delinquency without first providing notice and a reasonable opportunity to cure. The court first affirmed that waiver is the voluntary relinquishment of a known right, and estoppel arises from reasonable detrimental reliance, citing Mitchell v. Hughes. It agreed that Seller waived strict enforcement of installment payments by consistently accepting them late, requiring notice to reinstate the "time is of the essence" clause, citing Soltis v. Liles and Fisher v. Tiffin. The court then clarified that waiver of one contract provision does not automatically waive the right to enforce another. However, it found that the Court of Appeals erred in concluding Seller lacked knowledge of the tax default when accepting payments. The trust agreement required Buyer to "promptly deliver receipts" for tax payments. Because Buyer never delivered these receipts from 1990 onwards, Seller had at least constructive knowledge of the non-payment of taxes from that time. During this four-year period, Seller accepted late installment payments "with hardly a complaint," a pattern of conduct inconsistent with an insistence on strict performance of the trust agreement's terms, including the tax payment obligation. This conduct collectively constituted a waiver of the right to foreclose based on tax non-payment. Furthermore, due to Buyer's reasonable reliance on Seller's inaction over the years, Seller was estopped from foreclosing without prior notice and a reasonable opportunity to cure the tax delinquency. The court rejected the argument that accepting four installment payments after the January 1994 notice of default (which Buyer never received) alone constituted waiver or estoppel, as Seller was simultaneously pursuing foreclosure counsel and the delay was not unreasonable.
Analysis:
This case clarifies the interplay of waiver and estoppel in real property contracts, particularly when a seller's lenient conduct concerning one obligation (installment payments) might implicitly affect the enforcement of another (tax payments). It emphasizes that constructive knowledge, derived from specific contract terms (e.g., failure to provide receipts), can be sufficient to establish the "known right" element of waiver. The ruling highlights that a seller cannot maintain a pattern of lax enforcement for years and then suddenly invoke a "time is of the essence" clause for a known default without first providing clear notice and a chance for the buyer to rectify the situation. This protects buyers who have reasonably relied on a seller's past conduct and prevents arbitrary enforcement after a long period of acquiescence.
