Daily Development for
Tuesday, April 2, 1996

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

VENDOR/PURCHASER; BUYER'S REMEDIES; SPECIFIC PERFORMANCE: Even where the parties have provided that buyer's attorney is to draft an installment land contract to embody the agreement of the parties, purchaser is entitled to specific performance under an earnest money agreement that incorporates all necessary material terms of a contract for the sale of land. Ochs v. Albin, 903 P.2d 906 (Or. Ct. App. 1995).

Prior to being presented with the installment land contract, seller announced that she would not perform. She defended on the grounds that the parties had not reached complete agreement on the terms, since the installment land contract was yet to be drafted, much less accepted by the parties. The trial court denied specific performance because it felt bound by prior appeals court decisions, and the appeals court here distinguished those decisions and remanded, ordering that specific performance be granted.

On appeal: reversed: The appeals court first noted that the specifics of the sale itself were fully covered in the contract: (1) designation of the parties; (2) a description of the property to be sold; (3) a promise to sell and buy; (4) the purchase price and method of payment; and (5) a fixed time and place for delivery of the deed

The appeals court concluded that the existing earnest money agreement was sufficiently definite as to seller's remedies in the event of default when it designated the security instrument as a "land sale contract." It cited a 1979 law review article by the DIRT editor as authority for the definition of a "land sale contract." (In fact, the article defined the concept "installment land contract.") The court concluded that the parties had reached an agreement that title would remain with the seller until the purchase price was paid in full. The court emphasized that the bulk of the remedial portion of the contract to be drafted by the buyer's attorney would be controlled by the provisions of 1985 Oregon statute that establishes the method by which a seller's installment land contract rights can be enforced.

It's one thing to say that a contract is binding. It's another to say the contract is specifically enforceable. Courts that might be willing to give a damages remedy in particular cases are nonetheless chary about granting specific performance where details of the final agreement are uncertain. Furthermore, the tradition in financing cases has been to deny specific performance against the lender because courts are unwilling to saddle a lender with the risk of a borrower that the lender is not willing to accept. Thus, the decision of the court to grant specific performance against the seller/lender here is noteworthy.

Comment 1: Interpreting the written reference to "land sale contract" to mean an installment land contract with where seller retains title and the right to forfeit buyer's interest strikes the editor as a long leap indeed. The term "land sale contract" has many other meanings. At best, its use in this contract was ambiguous. And that fact alone ought to have precluded specific performance.

Comment 2: Although the court's language does not make it clear, the editor believes that the opinion should be read narrowly so as to apply only when remedial language in the installment land contract has been foreordained by statute. One would assume that neither buyer nor seller would be in a position to insist upon anything more in the contract than the terms set forth in the written earnest money agreement. One might then make the argument that the contract in this case devolves into little more than a financing statement for recording purposes. Where there is no statute, however, the drafter of the installment land contract conceivably would have to deal with such issues as the method, form and timing of notices, whether attorney's fees were collectible, acceleration rights and cure rights, etc. etc. Installment contract forfeitures are not well favored in the courts, and careful drafting is often necessary in order to enable the seller to avoid the pitfalls created by hostile courts. Prior to 1985, this was no less true in Oregon than in many other states.

Comment 3: The editor has not studied the entire statute, but it would seem that there likely still are some important issues that would have to be addressed in the preparation of the installment land contract. What sort of deed should be given? Does the buyer have to insure the property? To maintain it? Are the contract rights transferrable? There is no "standard form" installment land contract. Nor should there be. But if there is not a standard form, then how can the court order that the parties enter into the agreement?

Comment 4: Despite the problems described above, there is still an argument for ordering specific enforcement in cases like this, except where the seller can demonstrate that particular issues to be covered in the installment contract are unlikely to be resolved between the parties. The land is unique, and so is the financing arrangement. It would be extremely difficult for a court to assess an adequate damage remedy if it did not grant specific enforcement.

Comment 5: A particular "bite" here is that the contract provided for attorney's fees, meaning that the seller by now - following the appeal - will have to pay over to the buyer possibly as much or more than the entire amount of the contract - and still will have to finance the purchase.

For another recent view on specific performance see Double AA Corp. v. Newland & Co., 905 P.2d 138 (Mont. 1995) (In determining whether specific performance of a contract should be granted, a court should look to the contract itself and the relationship of the parties to decide whether the subject contract is fair and reasonable. Factors to be considered by the court include: 1) whether the contract was executed under circumstances unfavorable to the defendant because of lack of advice; and 2) the difference in each parties' business experience.) There is some suggestion in the Oregon opinion that these factors would have favored the seller had they been taken into account in that case.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Laprica Mims at the ABA. (312) 988 6233.

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.