Slone v. Calhoun
Not Provided (2011)
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Rule of Law:
A forfeiture clause in an installment land sale contract is not enforceable in Kentucky. Such contracts are treated as equivalent to a purchase money mortgage, and upon the buyer's default, the seller's sole remedy is to obtain a judicial sale of the property.
Facts:
- In August 2005, Rosa Lea Slone entered into an installment land contract with Michael Calhoun to purchase a lot and a mobile home.
- The contract required Slone to make monthly payments of $313, as well as pay for taxes and insurance on the property.
- In January 2009, without Slone's knowledge, Calhoun executed another land contract with Jerry Sumner for the same property.
- In May 2009, Slone informed Calhoun that she was unable to continue making the monthly payments and vacated the property.
- After May 2009, Calhoun and Sumner discovered their contract mistakenly described Slone's property and executed a corrected contract for an adjacent lot.
Procedural Posture:
- Rosa Lea Slone filed a lawsuit against Michael Calhoun and Jerry Sumner in the Knott Circuit Court, a trial court, seeking damages for breach of contract.
- The Knott Circuit Court conducted a bench trial.
- The trial court found that Slone had voluntarily terminated the contract and ruled that under the contract's forfeiture clause, she forfeited her interest in the property and all payments made.
- The trial court dismissed Slone's complaint.
- Slone, as the appellant, appealed the trial court's judgment to the Kentucky Court of Appeals.
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Issue:
Is a forfeiture clause in an installment land sale contract, which allows a seller to retain all payments and repossess the property upon the buyer's default, enforceable under Kentucky law?
Opinions:
Majority - Taylor, Judge
No. A forfeiture clause in an installment land contract is not enforceable under Kentucky law. Citing the controlling precedent of Sebastian v. Floyd, the court reasoned that there is no practical distinction between an installment land sale contract and a purchase money mortgage. When such a contract is executed, the buyer acquires equitable title to the property, while the seller retains only bare legal title as security for payment. Therefore, upon default, the buyer does not forfeit their entire interest; instead, the seller's only remedy is a judicial sale of the property, similar to a mortgage foreclosure, where proceeds are applied to the debt and any surplus is returned to the buyer. The court found that the trial court's failure to apply this established law resulted in a manifest injustice, requiring reversal even though the parties had not raised the controlling case.
Dissenting - Combs, Judge
Yes. The dissent argues that this case is distinguishable from Sebastian v. Floyd. The crucial difference is that Slone did not merely default but instead actively abandoned the property and voluntarily terminated the contract. In the dissenter's view, these actions of abandonment and voluntary termination remove the case from the protections established in Sebastian, and therefore, the trial court's decision to enforce the contract's terms, including forfeiture, was correct.
Analysis:
This case strongly reaffirms the Kentucky Supreme Court's holding in Sebastian v. Floyd, solidifying the legal doctrine that installment land contracts are to be treated as mortgages. The decision serves as a significant protection for purchasers under these contracts, preserving their ability to build and retain equity in a property. Furthermore, the court's choice to apply the Sebastian precedent despite the parties' failure to raise it underscores the judiciary's power to correct a "palpable error" to prevent a "manifest injustice," reinforcing the fundamental importance of the underlying legal principle over procedural missteps.
