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DALLAM v. HEDRICK

July 27, 1990.

JOHN P. DALLAM III, Appellee,
v.
LANCE D. HEDRICK and NANCY E. HEDRICK, Appellants.



*fn1 REPORTER'S NOTE: Previously filed as an unpublished opinion, the Supreme Court granted a motion to publish by an order dated April 3, 1991, pursuant to Rule 7.04 (1991 Kan. Ct. R. Annot. 33).

Defendants Lance D. Hedrick and Nancy E. Hedrick appeal from a conditional order of enforcement of an installment land contract forfeiture clause. The Hedricks defaulted by ceasing to make payments. We affirm.

The contract with which this litigation is concerned is a contract for deed entered into by and between plaintiff John P. Dallam III, as seller, and the Hedricks, as buyers, on December 12, 1986. These are the now pertinent provisions of the contract:
"[F]or the consideration hereinafter specified, the seller hereby sells, and agrees to convey to [the] buyer, the following described land . . . [7435 Woodson, Overland Park, Kansas].
"IN CONSIDERATION WHEREOF, [the] buyer hereby promises to pay the seller [$57,400] as follows:
  [$4,000] in hand and [$53,400] as follows: [1] $42.85 on the 1st day of January, 1987, and $42.85 on the 1st day of each succeeding month thereafter with interest at the rate of 11 percent per annum, with the remaining unpaid balance, if any, due in full on or before December 1, 1992, or until the principal amount of $4,500.00 has been paid in full, and [2] $467.56 on the

[16 Kan. App. 2d 259]

      1st day of January, 1987, and $467.56 on the 1st day of each succeeding month thereafter. Said amount [$467.56] is the principal and interest payment on the 1st mortgage held by Rothschild Financial. [The $467.56 payment] shall be due until the above first mentioned $4,500.00 has been paid in full. At that time, buyer shall assume said first mortgage [held by Rothschild]. . . . The buyer [is] to have possession of said real estate from this time.

 
"On full payment of the sums of money and interest aforesaid, . . . the seller shall convey said land to the . . . buyer by [warranty] deed. . . .
. . . .
"It is expressly understood and agreed that Time Is the Essence of This Contract and that if the buyer shall fail to pay any installment, [or] interest . . . for a period of 11 days after said payment shall become due and payable, then the amount theretofore paid by the buyer shall . . . be forfeited to the seller as liquidated damages for breach of this contract, and on such default, it will be lawful and proper for the seller, . . . without notice, to take possession of said premises. . . ." (Emphasis added.)
  The contract plainly entitled the Hedricks, the buyers, to the possession and occupancy of the subject residence as of the date of the contract and thereafter throughout the period for satisfaction of the $57,400 purchase price. However, within the contract are a punctuality of payment ("time is of the essence") provision and a forfeiture clause.

  The Hedricks timely made 24 monthly payments of $510.41 ($42.85 $467.56 = $510.41) from and after the execution of the contract. They made no payments thereafter. Their last payment was made as of December 1, 1988. They vacated the premises as of March 17, 1989. On June 20, 1989, the trial court ordered enforcement of the contract forfeiture clause but granted to the Hedricks the right to avoid that outcome if they would bring their payments current by July 31, 1989, a date 41 days after the trial court decision, 136 days after they vacated the premises, and some seven months after they defaulted upon failing to make payments as of January 1, 1989. The order made was of the sort approved in Vaughn v. Kauer, 147 Kan. 189, 75 P.2d 228 (1938).

  Under the contract, the purchase price principal is to be paid by payment of (1) $4,000 upon execution of the contract, (2) $4,500 through monthly payments of $42.85 each to Dallam, and (3) $48,900 first through monthly payments of $467.56 each to Dallam until the $4,500 is paid and then through payment of

[16 Kan. App. 2d 260]

      $467.56 each month pursuant to their assumption of Rothschild's first mortgage. The contract provision concerning the $4,500 to be paid to Dallam contemplates 72 monthly payments (January 1, 1987, through December 1, 1992) subject to possible prepayment(s).

  The contract effectively provides that the Hedricks are to pay 11% interest incident to their payments in satisfaction of the $4,500 element of their payment obligation and interest at an unspecified rate incident to their payments in performance of the $48,900 element of their payment obligation.

  We find it to be beyond sincere dispute that each monthly payment of $42.85 and $467.56 is to be first applied to the payment of interest then due with the balance of the payment to be applied to reduction of the unpaid principal balance. To illustrate, the first $42.85 payment would be applied to interest payment of $41.25 (1/12 X 11% X $4,500 = $41.25) with $1.60 ($42.85 - $41.25 = $1.60) applied to reduction of principal, leaving an unpaid principal balance of $4,498.40 ($4,500 - $1.60 = $4,498.40). The second $42.85 payment would be applied to interest payment of $41.24 (1/12 X 11% X $4,498.40 = $41.24) with $1.61 ($42.85 - $41.24 = $1.61) applied to reduction of principal, leaving an unpaid principal balance of $4,496.79 ($4,498.40 - $1.61 = $4,496.79). Our calculations reveal that, upon the Hedricks' twenty-fourth monthly $42.85 payment (January 1, 1987, through December 1, 1988), they had paid interest in the total amount of $985.67 and $42.73 toward reduction of principal, leaving a then unpaid principal balance of $4,457.27. Assuming there had been continued regular payments through December 1, 1992, (72 months) and no prepaid payment(s) of principal, the then unpaid principal balance would be $4,337.85 after total payment of $2,923.05 in interest and an aggregate reduction of principal in the amount of $162.15. A total sum of $3,085.20 (72 X $42.85 = $3,085.20 and $2,923.05 $162.15 = $3,085.20) would then have been expended by the Hedricks in making the $42.85 payments. According to the contract, as of December 1, 1992, the last monthly $42.85 payment and the $4,337.85 unpaid principal balance would both then be due and owing and, upon their payment, the Hedricks' performance of the $4,500 element of their purchase price obligation would be completed.

[16 Kan. App. 2d 261]

     

  As to the first mortgage held by Rothschild, neither the terms thereof nor the applicable rate of interest is revealed by the contract or elsewhere in the record on appeal. (For some presently unexplained reason, neither party has seen to it that any hearing transcript is included in the record on appeal.) Nonetheless, by his brief Dallam has represented to us that the interest rate is 11%. Inasmuch as the Hedricks have not challenged that representation by way of a reply brief or otherwise, we take the representation to be correct. Thus, upon using the same arithmetic calculations as previously described in regard to the $4,500 element of the purchase price obligation of the Hedricks, we find that upon 24 months' timely payments of $467.56, or a total expenditure of $11,221.44 (24 x $467.56 = $11,221.44) by the Hedricks, interest in the aggregate sum of $10,705.70 was paid and $515.74 in the aggregate was paid toward satisfaction of the $48,900 element of the purchase price obligation leaving $48,384.26 in unpaid principal. Had there been timely monthly payments of $467.56 for 72 months, $33,664.32 (72 x $467.56 = $33,664.32) would have ...


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