Opinion
NO. 2017-CA-001785-MR
04-26-2019
MARY MAYS APPELLANT v. ELLIS KENDALL AND MARGARET KENDALL APPELLEES
BRIEF FOR APPELLANT: Thomas Keith Hollon Beattyville, Kentucky BRIEF FOR APPELLEE: Darrell Herald Jackson, Kentucky
NOT TO BE PUBLISHED APPEAL FROM LEE CIRCUIT COURT
HONORABLE MICHAEL DEAN, JUDGE
ACTION NO. 16-CI-00057 OPINION
AFFIRMING
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BEFORE: CLAYTON, CHIEF JUDGE; JONES AND L. THOMPSON, JUDGES. THOMPSON, L., JUDGE: Mary Mays ("Appellant") appeals from an opinion and order of the Lee Circuit Court granting her legal and equitable title to a parcel of real property, and denying her request for a judicial sale of the property and a deficiency judgment. Appellant argues that the Circuit Court improperly failed to construe a land contract as requiring the judicial sale of the parcel upon default. For the reasons addressed below, we find no error and AFFIRM the Opinion and Order on appeal.
The facts are not in controversy. On November 4, 2011, the parties executed a land contract providing that Ellis and Margaret Kendall ("Appellees") would purchase from Appellant and her husband (now deceased) a parcel of real property with improvements situated in Lee County, Kentucky. The improvements included a store, a building and equipment. Under the terms of the agreement, payments on the purchase were to commence on March 10, 2012, in the amount of $600 per month, with a total purchase price of $90,000. The agreement further provided that in the event of default, Appellees would surrender the parcel to Appellant, with Appellant retaining all monies previously received as if they were monthly rental payments.
Appellees commenced payments to Appellant, and defaulted in November 2013. According to the record, upon default, Appellees sought to surrender the parcel and improvements to Appellant, and to vacate the premises. Appellant declined to accept the property because she was unable to manage the property, she had no use for it and it allegedly was in a state of general disrepair.
Appellant commenced the instant action in Lee Circuit Court on June 23, 2016, in which she sought to bring about a judicial sale of the parcel and to collect a deficiency judgment. Proof was taken by way of depositions, and submitted to the court for adjudication. On July 25, 2017, the court entered an opinion and order denying Appellant's request for a judicial sale, and ordering that the parcel be surrendered to Appellant under the terms of the land contract. Appellant's subsequent motion to vacate was denied, and this appeal followed.
The sole issue for our consideration is whether the Lee Circuit Court committed reversible error in ordering the surrender of the subject parcel to Appellant in lieu of the judicial sale and deficiency judgment sought by Appellant. In support of her contention that a judicial sale is the only lawful remedy upon default, Appellant directs our attention to Sebastian v. Floyd, 585 S.W.2d 381 (Ky. 1979). According to Appellant, Sebastian stands for the proposition that if either party objects to surrender of title in favor of the seller upon default of a land contract, a judicial sale is required irrespective of what the contract provides. Appellant notes that the preparer of the land contract at issue was aware of Sebastian and incorporated it by reference in the default provision. This provision states in relevant part that in the event of default,
. . . the Vendees [Appellees] should surrender the premises to the Vendor [Appellant] and this contract shall become null and void and the Vendor shall retain all monies received from Vendees as if they were monthly rental payments. (The preparer hereof has informed the Vendees that this provision is contrary to Kentucky law, see Sebastian v. Floyd, 585 SW2 381 and that foreclosure by the Vendor is the proper way to deal with default by the Vendee, however the Vendees chose to proceed in the manner indicated herein.)The focus of Appellant's argument is that Sebastian requires the judicial sale of the parcel upon default of a land contract, and that the Lee Circuit Court erred in failing to rule.
In Sebastian, the issue before the Court was whether a clause in an installment land sale contract providing for the forfeiture of the buyer's payments upon buyer's default was enforceable by the seller. In examining this issue, the Court stated:
There is no practical distinction between the land sale contract and a purchase money mortgage, in which the seller conveys legal title to the buyer but retains a lien on the property to secure payment. The significant feature of each device is the seller's financing the buyer's purchase of the property, using the property as collateral for the loan.Sebastian, 585 S.W.2d at 383.
The Kentucky Supreme Court in Sebastian opined that as with a purchase money mortgage contract, the land contract purchaser must be allowed to redeem the property by paying the full debt plus interest and costs at a judicial sale. The Court's reasoning was that in each instance, a judicial sale benefits the defaulting buyer by allowing him to retain rather than forfeit any interest and equity he has in the parcel. Id. As such, judicial sales benefit defaulting buyers rather than sellers. Id.
In the matter below, the Lee Circuit Court recognized that the Sebastian holding protects the purchaser in a land contract sale from having his right to redeem involuntarily forfeited by operation of the contractual language. As Appellees herein did not seek a judicial sale, instead merely wanting to hand Appellant the keys and walk away, the Lee Circuit Court determined that Sebastian does not require a judicial sale in circumstances where the defaulting buyer does not seek to redeem the parcel. It concluded that to hold otherwise would be to allow Appellant a deficiency judgment in direct contradiction to the remedy expressly agreed to by the parties. We find this reasoning persuasive.
Having closely examined the record and the law, we find no error in this conclusion. The dispositive question is whether Sebastian precludes Appellees from surrendering the parcel to Appellant rather than asserting a right to redeem. We conclude that it does not. The holding in Sebastian is fact-specific. Its application is limited to circumstances in which the defaulting buyer seeks to be made whole again by re-purchasing the parcel at a judicial sale, albeit at the cost of additional interest and fees. This is to be contrasted with the facts before us, in which Appellees sought to enforce the land contract as drafted and to surrender the parcel to Appellant. Appellees waived their right to redemption. Further, and contrary to Appellant's claim, Sebastian does not require a judicial sale if either party seeks it. The holding in Sebastian was squarely directed at protecting defaulting buyers.
The parties herein freely entered into a land contract, the terms of which expressly provided for surrender of the parcel upon default in lieu of a judicial sale and default judgment. Since Sebastian operates to protect the interests of a defaulting buyer who seeks redemption at a judicial sale, and as Appellees are voluntarily surrendering the parcel under the terms of the contract in lieu of redemption, we find no error in the Lee Circuit Court's conclusion that Sebastian does not compel a judicial sale under the facts before us. Accordingly, we AFFIRM the opinion and order of the Lee Circuit Court.
CLAYTON, CHIEF JUDGE, CONCURS.
JONES, JUDGE, DISSENTS BY SEPARATE OPINION. JONES, JUDGE, DISSENTING: Respectfully, I dissent. Our appellate courts have characterized provisions, like the one in this appeal, as being void. I do not believe the parties had the power to circumvent the foreclosure laws of this Commonwealth by contract provision, regardless of who ultimately sought enforcement or avoidance of the provision. As this Court previously held:
The only judicial remedy to resolve the alleged breach of the land contract between the parties is a judicial sale of the property. See Sebastian, 585 S.W.2d 381. The forfeiture provisions set forth in the agreement are invalid as a matter of law and are otherwise not enforceable. Regardless of who defaulted under the terms
of the land contract, which is an issue we do not reach, the only recourse for the parties in this case is to seek a judicial sale, which will result in a judgment that will quiet title as well as determine the parties' respective rights to the proceeds therefrom.Slone v. Calhoun, 386 S.W.3d 745, 748-49 (Ky. App. 2012) (emphasis added). BRIEF FOR APPELLANT: Thomas Keith Hollon
Beattyville, Kentucky BRIEF FOR APPELLEE: Darrell Herald
Jackson, Kentucky