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holding that where "there is no clear indication of retroactive application, then the statute may only apply to cases which arise subsequent to its enactment."
Summary of this case from Braun v. Coulter Ventures, LLCOpinion
No. 86-318
Decided December 26, 1986.
Real property — Land installment contracts — R.C. 5313.07 and 5313.08 may not be applied retroactively to contracts in existence at time statutes were enacted — Section 28, Article II, Ohio Constitution.
O.Jur 2d Vendor and Purchaser § 138.7
The retroactive application of R.C. 5313.07 and 5313.08 to land installment contracts which were in existence at the time of the enactment of these statutes is violative of Section 28, Article II of the Ohio Constitution which prohibits the enactment of retroactive laws or laws impairing the obligation of contracts.
APPEAL from the Court of Appeals for Clermont County.
Appellants, Herman G. Coleman and Ruth R. Coleman, owned in fee simple absolute 43.36 acres of land, a house and a barn located on Stevens Lane, in Monroe Township, Clermont County. Appellants entered into a land contract with appellees, Mack and Carlene Kiser, on or about July 29, 1965 for the sale of the property to appellees. By the terms of the agreement, commencing on January 1, 1966, the Kisers were to pay $75 per month, all taxes and assessments, and to maintain a policy of homeowner's insurance payable to the sellers. The contract also contained the following clause:
"That in case of the failure of the Purchaser to make any payment when due, or within 10 days thereafter, or to perform any of his other covenants, the unpaid balance shall become due, at the option of the seller; or, upon such default, the Seller may elect to terminate this agreement and treat it as void and retain all payments as liquidated damages for non-performance by the Purchaser and may enter and take possession of said premises without legal process or notice."
In December 1970, Mack Kiser died. The record discloses that up to that point in time, appellees had made fairly regular payments, but almost never on the required date. After Kiser's death, payments became much more sporadic with four bulk payments made in 1971, three in 1972 and one in 1973, all of which were late. In August 1974, appellants sent a note to Mrs. Kiser informing her that she was $1,687.65 behind in her payments. At that time, she was also $754.21 behind in payments due for insurance, taxes and interest.
Thereafter, Mrs. Kiser sent a check to appellants for $1,000 along with a note promising to pay $687.65 by the following month. On August 30, 1974, appellants received notice from their local bank that the check had been dishonored upon presentment due to insufficient funds. That day appellants caused a notice to vacate the premises to be hand-delivered to Mrs. Kiser. The note stated as follows:
"Dear Madam: You are hereby notified to vacate the premises where you live on or before October 1st[,] 1974 or I will have to take legal action to re-obtain possession of this property."
Mrs. Kiser returned the above notice, having written upon it that the check should be presented again and that she would "be paying this off soon." By letter dated September 18, 1974, she sent a check for $690.85 and promised to pay off the farm by January 1, 1975. On October 7, 1974, she wrote requesting appellants to hold the check until "the first of next month." She also requested that appellants have the bridge into the subject property repaired.
In his deposition, Herman Coleman stated that on or about August 1974, he had a conversation with Mrs. Kiser and advised her that the land contract was no longer in force and that thereafter she must make rent payments of $115 per month. Thereafter Mrs. Kiser submitted a check dated October 4, 1974 for $230, which was designated "House payment rent Sept. Oct.," and another check dated November 7, 1974 for $115, which was designated "House Rent."
The record indicates that on February 12, 1975, a fire destroyed the house in which Mrs. Kiser lived. That night she left the premises and later rented another house nearby. She made no further payments of any kind, including taxes and insurance. In May 1975, appellants received an insurance check in the amount of $8,000. The balance which had been owing on the land contract was $8,013.64. On May 21, 1975, an attorney for Mack Kiser's estate filed a record of the land contract in the county recorder's office, without notice to appellants. Subsequently, appellants paid all taxes and insurance. They exercised full incidence of ownership over the property and made improvements thereupon.
In February 1979, Mrs. Kiser and Dusty Lynn Kiser, who had been appointed to administer the estate of the late Mack Kiser, filed suit in equity, requesting specific performance of the land contract. They asserted that the insurance check should have been applied to the amount owing on the land contract and, in the alternative, that under R.C. Chapter 5313, effective November 25, 1969, Mrs. Kiser was entitled to retain title to the land. Appellants, in their answer, asserted the validity of the declaration of forfeiture of August 30, 1974 and also that laches applied because of abandonment. In addition, appellants counterclaimed with an action to quiet title on a land contract.
The matter was first tried in April 1981, which resulted in a finding for appellants. After a motion for new trial was granted, the matter was retried upon the exhibits, a deposition, prior trial testimony and oral arguments of counsel on January 11, 1985. By judgment entry dated May 14, 1985, the trial court held for appellants. The court found that R.C. Chapter 5313 was inapplicable and that appellees had forfeited their interests in the land on August 30, 1974.
The court of appeals, in a divided opinion, reversed, finding that R.C. 5313.07 and 5313.08 were retroactively applicable to the parties' land contract.
The cause is now before this court pursuant to the allowance of a motion to certify the record.
Durkee Hannon and R. Daniel Hannon, for appellees.
Walker, Bradford Hill and William Walker, for appellants.
For the reasons set forth below, we hold that R.C. 5313.07 and 5313.08 may not be applied to land contracts entered into before the effective date of the statutes.
The law in force prior to the enactment of R.C. Chapter 5313 most clearly granted to vendors of a land contract the right to declare the vendee's forfeiture for breach of such land contract without legal proceedings where such right was contractually agreed upon by the parties. See, e.g., Hulett v. Fairbanks (1883), 40 Ohio St. 233; Gallagher v. Billmaier (App. 1958), 79 Ohio Law Abs. 417 [6 O.O.2d 142]. Further, such forfeiture became effective upon notice. See, e.g., Hegg v. Sigle (App. 1933), 14 Ohio Law Abs. 457. Judicial relief was limited to equitable considerations alone.
In 1969, the General Assembly acted to change that state of the law by enacting R.C. Chapter 5313, land installment contracts. The chapter made express changes in the above common law by its provisions contained in R.C. 5313.07 and 5313.08. R.C. 5313.07 provides, in pertinent part:
"If the vendee of a land installment contract has paid in accordance with the terms of the contract for a period of five years or more from the date of the first payment or has paid toward the purchase price a total sum equal to or in excess of twenty per cent thereof, the vendor may recover possession of his property only by use of a proceeding for foreclosure and judicial sale of the foreclosed property * * *. In such an action, as between the vendor and vendee, the vendor shall be entitled to proceeds of the sale up to and including the unpaid balance due on the land installment contract."
R.C. 5313.08 provides, in pertinent part:
"If the contract has been in effect for less than five years, in addition to any other remedies provided by law and after the expiration of the periods prescribed by sections 5313.05 and 5313.06 of the Revised Code, if the vendee is still in default of any payment the vendor may bring an action for forfeiture of the vendee's rights in the land installment contract and for restitution of his property * * *. The court may also grant any other claim arising out of the contract."
These provisions limit the availability of forfeitures to specific circumstances.
The first step of analysis must be to determine the effect of R.C. 1.48 on the statute in question. That statute states: "A statute is presumed to be prospective in its operation unless expressly made retrospective." If there is no clear indication of retroactive application, then the statute may only apply to cases which arise subsequent to its enactment.
In the case before us, there is no indication that the statutes at issue were intended to have other than prospective application. We therefore presume, under authority of R.C. 1.48, that the statutes at issue were not intended to operate retrospectively. On this basis alone, the decision of the court of appeals is reversible.
We now, sua sponte, pass upon the issue of whether Ohio's Constitution is violated by retroactive application of R.C. 5313.07 and 5313.08.
At issue is whether retroactive application of the above statutes violates the Ohio Constitution by impairing an obligation of contract or being an enactment of retroactive laws contrary to Section 28, Article II of the Ohio Constitution.
Section 28, Article II states:
"The general assembly shall have no power to pass retroactive laws, or laws impairing the obligation of contracts; but may, by general laws, authorize courts to carry into effect, upon such terms as shall be just and equitable, the manifest intention of parties, and officers, by curing omissions, defects, and errors, in instruments and proceedings, arising out of their want of conformity with the laws of this state."
In French v. Dwiggins (1984), 9 Ohio St.3d 32, 33, the court noted with approval that: "'Section 28, Article II * * * prohibiting the passage of retroactive laws, has application to laws affecting substantive rights, and has no reference to laws of a remedial nature providing rules of practice, courses of procedure or methods of review, * * *'" citing Kilbreath v. Rudy (1968), 16 Ohio St.2d 70 [45 O.O.2d 370], paragraph one of the syllabus. Substantive law is defined in Kilbreath, at 72, as "that which creates duties, rights and obligations," while procedural or remedial law "prescribes the methods of enforcement of rights or obtaining redress." Id.
Clearly, new substantive rights are created by R.C. 5313.07. Upon payment of twenty percent of the purchase price or payments extending over five years, the defaulting vendee has been effectively granted an equity of redemption in the property. Further, the statutes would destroy the vested rights of appellants to foreclosure according to the terms of their contract, i.e., upon default and without judicial process. R.C. 5313.07 and 5313.08 together make it irrelevant whether this foreclosure right was exercisable within the first five years or thereafter. The contractual right of possession which was in the vendee only so long as the contract was in force was established as a legal right in the vendee by R.C. 5313.07, which would exist despite the enforceability of the contract.
In Goodale v. Fennell (1875), 27 Ohio St. 426, this court effectively held that any change in the law which impairs the rights of either party, or amounts to a denial or obstruction of the rights accruing by contract, is repugnant to the Constitution. This the statutes at issue clearly do. Thus, the retroactive application of R.C. 5313.07 and 5313.08 to land installment contracts which were in existence at the time of the enactment of these statutes is violative of Section 28, Article II of the Ohio Constitution which prohibits the enactment of retroactive laws or laws impairing the obligation of contracts.
Having determined that R.C. 5313.07 and 5313.08 are inapplicable, we reinstate the holding and analysis of the trial court, and accordingly reverse the judgment of the court of appeals.
Judgment reversed.
CELEBREZZE, C.J., C. BROWN and WRIGHT, JJ., concur.
LOCHER, J., concurs in judgment only.
SWEENEY and DOUGLAS, JJ., dissent.