Daily Development for
Thursday, July 11, 1996

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

VENDOR/PURCHASER; INSTALLMENT LAND CONTRACTS; BUYER'S DEFENSES; LACHES: A delay in excess of fifteen years in commencing an action to cancel a land contract does not constitute conduct so inconsistent with the right of cancellation as to waive the right. Schmidt v. Schmidt, 540 N.W.2d 605 (N.D. 1995).

Parents sold the family farm to their son on a contract for deed. Son paid $20,000 down and agred to pay the $95,000 balance of the price in 40 annual installments with four percent interest. At least according to a subsdquent IRS audit, the purchase price was a fraction of the value of the property.

Son defaulted in the annual payments, and had been in default for "many years." The court does not say how many payments were made, but determined the outstanding balance, with accrued interest, to be $133,000.

When the second parent died, her estate brought an action to cancel the contract. The son asserted that the cancellation action should be barred by the doctrine of laches.

The court cited the well settled rule that laches does not arise from a delay or lapse of time alone, but is a delay in enforcing one's rights which works as a disadvantage to another. Time and prejudice are both essential elements of a successful laches defense. As the record is unequivocal in showing that the son had use and possession of the land for over fifteen years without making any payments on the contract prejudice is lacking and no defense of laches is permissible.

Comment 1: If indeed the value of the land is several multiples of the amount of the debt, we are confronted here with a true major forfeiture. The defaulting son had already received a substantial gift from his parents, apparently believed that his mother was leaving him the farm in her will, and also claimed that he had made a substantial payment to her that should have offset his liability for most of the payments on the debt.

It appears that the son's failure to raise these issues properly in the probate proceeding may bar all of them except laches. But, in fact, if these issues are true, then they may explain how the son was being misled into believing that the parents were waiving their debt claim when they didn't even ask for payment for over fifteen years. Isn't there injustice now in forfeiting very valuable land when the son can't come up with $113,000 that he may have thought was not owed? Note that the executor of the estate was a sibling of the debtor. There may be a little interfamily "push-pull" going on.

The court, of course had the transcript and the briefs, and there may be more in the actual case than we get in the opinion. Nevertheless, the opinion is a guide to future courts, and it seems to condone an unjust result for no particularly good reason.

Comment 2: This case again illustrates the difficulties that are inherent in that pesky forfeiture clause in the installment land contract. Many states have done away with the device entirely, and the new Restatement on Land Security would do so as well. Some farm states argue that it is a good "low down payment" type of financing, but, of course, the jurisprudence of those states usually does not limit its use to that type of deal, and the case under consideration here was not a "low down" deal. Except, arguably, in the state of Michigan, is has never reached major acceptance as a formal financing device, and in many states there are so many equitable defenses to its enforcement that use of the device, in the words of Grant Nelson, is "courting clouds on title." Is it really worth the trouble?

Comment 3: Note that in this case, if we had a note secured by a mortgage, we'd have various statutes of limitations or other defenses as to at least some of this claim.

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