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HomeMy WebLinkAbout2006-4135 Civil KEITH A. BLESSING : IN THE COURT OF COMMON PLEAS OF : CUMBERLAND COUNTY, PENNSYLVANIA : V. : : RALPH L. FOSTER, JR. : 06-4135 CIVIL TERM IN RE: EJECTMENT BEFORE BAYLEY, J. OPINION AND ORDER OF COURT Bayley, J., November 26, 2007:-- July 21, 2006 On , plaintiff, Keith A. Blessing, filed a complaint for ejectment against defendant, Ralph L. Foster, Jr., alleging a default by Foster of an installment sales agreement dated March 31, 2004, for a 116 acre farm at 180 Ponderosa Road, Lower Frankford Township, Cumberland County. Plaintiff avers that a notice of default was sent to defendant on June 27, 2006, and that defendant failed to cure the default within fifteen days thus rendering the installment sales agreement “null and void” and giving him the right to possession of the farm. A bench trial was conducted on November 12 and 13, 2007 . Ralph Foster, Jr., has lived on the Ponderosa Road farm for 62 years. On April 10, 1967, his parents deeded the farm to him and his wife Evelyn. Evelyn died on January 9, 1998. In the beginning of 2004, a mortgage on the property was in arrears and Foster was being threatened with foreclosure. Approximately $200,000 was needed to satisfy the mortgage. Foster sought financial help from his uncle George Blessing. Blessing told him that maybe his nephew Keith Blessing could help, and he introduced them. Keith Blessing agreed to buy the farm from Foster for $200,000 which 06-4135 CIVIL TERM 1 was enough to satisfy the mortgage. To raise the money, Keith Blessing took a mortgage from David McGowan. McGowan, an investor, was satisfied that his loan was secure because the tax assessment for the farm was $378,240, $289,410 for the land and $88,830 for the farmhouse, barn and other buildings. The agreement between Blessing and Foster was that on the date of settlement they would enter into an installment sales agreement for Foster to purchase the farm for $200,000 at six percent March interest per annum with monthly installments of $1,199.10 for thirty years. On 31, 2004 , settlement occurred on both the sale of the farm from Foster to Blessing and 2 the installment sales agreement between Blessing and Foster. The installment sales agreement contains requirements related to insurance and taxes that form the basis at trial for plaintiff’s claim that defendant breached the agreement which he alleges 3 renders it null and void giving him a right to possession on this complaint for ejectment. Those provisions are: A fire and extended coverage insurance policy on the subject premises exclusive of the contents thereof, for the coverage of not less than TWO HUNDRED THOUSAND ($200,000.00) DOLLARS will be purchased and maintained by, and at the expense of, the Buyer and, as of the date hereof, the policies shall be endorsed by the insuring companies for the benefit of both the Seller and Buyer as their respective interests may appear between the date of this Agreement and the final settlement hereunder. Buyer hereby further covenants, agrees and promises to indemnify and save harmless the Seller, his heirs, successors, personal representative, and assigns, from any liability or loss, including Court and 1 Blessing owns and lives in a home on a twelve and a half acre tract that is a short distance from the Ponderosa Road farm. 2 The installment sales agreement was written by Blessing’s attorney. Foster did not have an attorney even though it was suggested to him by Blessing’s attorney that he should. At settlement, Blessing’s attorney read the installment agreement to Foster paragraph by paragraph. Foster told him that he understood the terms. 3 There were other requirements in the agreement that were alleged in the complaint to be in default, but they were abandoned at trial. -2- 06-4135 CIVIL TERM counsel fees for any defense litigation, resulting from any accident, injury, or occurrence on the said premises or connected in any way thereto. Buyer is responsible for all real estate taxes that may be due on the Property as of the date of this Agreement. Seller will provide Buyer with copies of all tax bills. Buyer will provide Seller with proof of payment of all tax bills. Before settlement on March 31, 2004, Foster had the following insurance coverage on the farm placed by the Miller Insurance Agency with Brethren Mutual Insurance Company: fire and casualty of $42,000 on the farmhouse and $33,000 on a barn and other outbuildings: $5,000 on machinery; $8,400 for loss of use; $21,000 for contents; and aggregate general liability of $200,000. Before the settlement, Keith Blessing called Foster’s agent at the Miller Insurance Agency and told her that he was purchasing Foster’s farm, that Foster was renting it back from him, and that he needed a binder for a settlement. This was the same agent who had placed Foster’s insurance with Brethren. The agent had a new insurance policy issued by Brethren to Keith Blessing that insured the farmhouse for $100,000, the barns and other buildings for $108,000, and other structures for $10,000. The agent then cancelled Foster’s existing building coverage with Brethren. Blessing testified that after the settlement he told Foster that he would have to get $200,000 insurance coverage on the farm buildings and Foster told him that he had $100,000 coverage. On September 21, 2004, Brethren had the buildings on the farm inspected and suggested to Blessing a number of risk improvements that needed to be made. The agent at Miller Insurance went over the suggestions with Blessing on November 1, 2004 . Blessing was not willing to make the improvements and he cancelled the policy. Blessing wrote to Foster that he would have to obtain $200,000 -3- 06-4135 CIVIL TERM 4 coverage for the buildings on the property. He testified that during the first year after settlement that Foster told him that he would get $200,000 insurance coverage on the property, and during this time he thought that Foster had $100,000 coverage on the property. Foster has paid taxes directly to the tax collector as follows: County and Township 2004 Paid April 7, 2004 in the amount of $256.27 (discount) 2006 Paid May 19, 2006 in the amount of $349.18 (face) 2007 Paid April 12, 2007 in the amount of $364.44 ) (discount Big Spring School District 2004 Paid August 18, 2004 in the amount of $1,236.42 (discount) 2005 Paid August 29, 2005 in the amount of $1,598.41 (face) 2006 Paid October 30, 2006 in the amount of $1,825.12 (face) For some reason, Blessing did not provide Foster with the 2005 county and township tax bill as required by the installment sales agreement. He paid at face in the amount of $311.84. He then demanded that Foster reimburse him $343.02 which was the penalty amount. Foster did not make his installment payment in June, 2005, and he missed another in April, 2006. On May 6, 2006, Blessing wrote to him asking for the back payments plus $343.02 paid for the 2005 county and township taxes. The total sought was $3,943.02. Within fifteen days, Foster paid Blessing everything but the $343.02. June 27, 2006 On , Blessing sent Foster the following written notice of default by certified mail: 4 He did not demand reimbursement for the premium he had paid at the time of settlement for the Brethren policy. -4- 06-4135 CIVIL TERM This letter is to inform you that you are in further default of the terms and provisions of our Installment Sales Agreement for Real Estate made March 31, 2004 (“the Agreement”). You are in default of paragraph 8 of the Agreement which requires: A fire and extended coverage insurance policy on the subject premises exclusive of the contents thereof, for the coverage of not less than TWO HUNDRED THOUSAND ($200,000) DOLLARS will be purchased and maintained by, and at the expense of, the Buyer and, as of the date hereof, the policies shall be endorsed by the insuring companies for the benefit of both the Seller and Buyer as their respective interest may appear between the date of this Agreement and the final settlement hereunder. You have fifteen days from the date of the mailing of this letter to cure the default to my satisfaction according to paragraph 11 of the Agreement.You must send proof of fire and extended insurance coverage for 180 Ponderosa Road, Carlisle, PA, that benefits both you and me from March 31, 2004, to present as required by the Agreement. The proof of coverage must be sent within fifteen days to: 319 Bobcat Road, Newville, PA 17241. (Emphasis added.) July 5, 2006 The insurance agent at the Miller Agency testified that on , Foster came to her office seeking insurance with a copy of the certified letter of default dated June 27, 2006, which set forth that the buyer must provide “fire and extended coverage insurance policy on the subject premises exclusive of the contents thereof, for the coverage of not less than TWO HUNDRED THOUSAND ($200,000) DOLLARS.” The agent testified that she interpreted the letter as requiring contents insurance and that 5 she gave Foster a quote of about $450 a year. Foster said it was too expensive. July 21, 2006 On , Blessing’s attorney wrote to Foster: You have failed to cure your default of the Installment Sales Agreement for Real Estate made March 31, 2004, by you and my client, Mr. Blessing hereby declares the Installment Mr. Blessing. Therefore, 5 On February 23, 2007, the agent signed an affidavit prepared by plaintiff’s attorney, which stated that in July, 2006, when Foster came to her office that she read the default notice and determined that the insurance sought related to fire and casualty loss coverage for the buildings for $200,000. She gave Foster a quote for that coverage which Foster said was too expensive. At trial, the agent testified that she made a mistake in the affidavit and in fact, as she testified, she gave Foster the approximate $450 a year quote for additional contents insurance which Foster said was too expensive. -5- 06-4135 CIVIL TERM Sales Agreement null and void as his remedy under paragraph 11(a). (Emphasis added.) Thereafter, Blessing obtained $200,000 in fire and casualty insurance on the farm through the Reisinger Insurance Agency. In 2007, Foster asked the agent at Miller Insurance for a quote for $200,000 worth of insurance on the buildings. The agent did not give him a quote because she had received a fax from Blessing on March 30, 2007, which stated that she was not to sell any dwelling insurance to Foster. Foster then obtained a $200,000 fire and casualty policy on the farm from another agency. Foster has tendered $343.02 to Blessing for the 2005 county and township tax bill Blessing paid at $311.84 at face. Foster has, through the date of trial, sent checks to Blessing of $1,199.10 each month for installment payments. Blessing has not cashed them. Foster has offered to pay off the remaining amount due under the installment sales contract and take title to the farm. Blessing has refused. As his counsel said during closing argument, “a line has been drawn in the sand.” Paragraph 11 of the installment sales agreement provides: In the event the Buyer shall be in default of any of the terms and provisions of this Agreement, Seller shall give written notice to Buyer, sent to Buyer’s address as listed herein, of such default. Said notice shall be sent certified mail, return receipt requested, and the notice shall be If Buyer does not cure effective as of the date of mailing if so mailed. such default to the satisfaction of the Seller within fifteen (15) days of Seller’s letter being mailed to Buyer, Seller shall have the right, at Seller’s own and sole option, to any of the following remedies: Seller may declare this Agreement null and void (a) and may retain any and all payments made by Buyer to Seller pursuant to this and may at Seller’s sole option, retake possession of the Agreement premises , sue Buyer for the balance due under this Agreement, or both… (Emphasis added.) -6- 06-4135 CIVIL TERM DISCUSSION The only certified written notice of default that was sent by Blessing to Foster was dated June 27, 2006. That notice alleged a default for Foster’s failure to obtain $200,000 in insurance coverage on the premises, not for any failure to pay taxes. Therefore, notwithstanding what Blessing has averred as defaults in his complaint, he cannot declare the installment sale agreement null and void and obtain possession under the remedy in Paragraph 11 on the basis that Foster, within fifteen days after the notice of default, did not reimburse him for the $343.02 he wanted for the 2005 county tax bill that he paid at face in the amount of $311.84. Foster maintains that the default provision in Paragraph 11 of the installment sales agreement, that allows Blessing after sending the notice of default on June 27, 2006 to declare the agreement null and void with a right to obtain possession of the farm without first giving Foster the opportunity to pay off the entire amount owing under Stillwater Lakes Civil Association v. Krawitz the agreement, is unconscionable. In , 772 A.2d 118 (Pa. Commw. 2001), the Commonwealth Court stated: Under the typical installment land contract, the buyer takes possession of the property and makes periodic installment payments to the seller until the contract price is paid. Anderson Contracting Company v. Daugherty, 274 Pa.Super. 13, 417 A.2d 1227 (1979), appeal dismissed, 492 Pa. 630, 425 A.2d 329 (1980). When the contract is singed, the buyer becomes the equitable or beneficial owner of the property. Byrne v. Kanig, 231 Pa.Super. 531, 332 A.2d 472 (1974). The seller retains legal title to the property as security for the buyer’s performance of the contract until the buyer satisfies the terms of the contract. Anderson Contracting Company. At that point, the seller delivers a deed to the buyer, conveying legal title to the property. RESTATEMENT (THIRD) OF PROPERTY (Mortgages) § 3.4 cmt. a (1996). Although the seller retains legal title as security for payment of the contract price, Pennsylvania case law states that an installment sale agreement should be treated as a mortgage. Anderson Contracting the Company. Indeed, Pennsylvania has adopted a view stating that -7- 06-4135 CIVIL TERM relationship between a seller and a buyer who are parties to an installment sale agreement is that of mortgagee and mortgagor. Id. A mortgage is the retention of an interest in real property as security for the performance of an obligation. RESTATEMENT (THIRD) OF PROPERTY (Mortgages) § 1.1 (1996). (Footnote omitted.) (Emphasis added.) On a mortgagor’s default, a mortgagee has three remedies available: an action at law on the mortgage debt, an action to gain possession, and an action of mortgage Kohl v. PNC Bank National Association, foreclosure. 912 A.2d 237 (Pa. 2006). Since a relationship between a seller and a buyer who are parties to an installment sales agreement is that of mortgagee and mortgagor, and since a mortgagee can regain possession following default by an action in ejectment, we do not believe that Paragraph 11 in the installment sales agreement between Blessing and 6 Foster is unconscionable. We further note that the Installment Land Contract Law, 68 Pa.C.S. Sections 901-911, which applies to some installment contracts for the sale of a dwelling situated in any city of the first class or county of the second class, has a provision in Section 904 that allows for termination of a contract upon a purchaser’s 6 Anderson Contracting Company v. Daugherty, In 274 Pa. Super. 13 (1979), the Commonwealth Court held that the vendee in a land sales contract for the purchase of a residential dwelling has a right to et cure a default in accordance with the provisions of Act No. 6 of January 30, 1974, 41 P.S. Section 101 seq. Section 404 of the Act provides: Right to cure a default (a) Notwithstanding the provisions of any other law, after a notice of intention to foreclose has been given pursuant to section 403 of this act, at any time at least one hour prior to the commencement of bidding at a sheriff sale or other judicial sale on a residential mortgage obligation, the residential mortgage debtor or anyone in his behalf, prevent sale or not more than three times in any calendar year, may cure his default and other disposition of the real estate and avoid acceleration, if any, by tendering the amount or performance specified in subsection (b) of this section. (Emphasis added.) Because Foster’s residence is on the property at 180 Ponderosa Road, it constitutes a “Residential real property” as it is defined in Section 101 of Act 6. However, because the installment sales agreement obligated Foster to pay an original bona fide principal amount in excess of $50,000 the obligation in the installment sales agreement does not constitute a “Residential mortgage” as defined in Section 101 of the Act. Therefore, the provisions in Act 404 are not available to him. -8- 06-4135 CIVIL TERM default and does not have a provision giving a defaulting purchaser a right to pay off the entire amount owing under the contract. The installment sales agreement provides that on the date of settlement, which was March 31, 2004, Foster was to have $200,000 extended insurance coverage on the premises exclusive of contents, to be maintained by him with policies to be endorsed for the benefit of Blessing. Foster already had a total of $75,000 of fire and casualty insurance; $42,000 on the farmhouse and $33,000 on the barn and other buildings, 7 which would have required him to obtain an additional $125,000 in coverage. Notwithstanding the insurance provision in the agreement, Blessing, before settlement, had Foster’s agent at the Miller Insurance Agency write a new policy for himself for fire and casualty insurance totaling $218,000 on all of the structures, which resulted in the 8 agent canceling Foster’s existing building coverage with the insurer. Seven months later on November 1, 2004, Blessing cancelled this insurance for the obvious reason that he did not want to make the improvements to the property that were suggested by the insurer. It is not surprising that when Blessing pressed Foster to then buy $200,000 in building coverage, as he had done before, Foster, who was still paying for content, machinery, loss of use and aggregate general liability coverage, thought he still had the building coverage on the property that he never cancelled. It is also obvious that the coverage in the amount of $200,000 called for in the installment sale agreement and 7 The insurance records show that the buildings coverage plus the coverage for machinery, loss of use, contents and aggregate general liability had an annual premium of $460. 8 There is no evidence in the record as to what this coverage cost Blessing. The insurance records show that the annual premium on Foster’s insurance was reduced from $400 to $250. -9- 06-4135 CIVIL TERM demanded of Foster by Blessing was well in excess of the value of all of the buildings on the 116 acre farm. The notice of default dated June 27, 2006, which was a condition precedent for Blessing to declare the installment sales agreement null and void under Paragraph 11, sets forth a condition for curing the default that Foster, because of Blessing’s conduct, could not meet. The notice, after setting forth the provision in the installment sales agreement that required Foster to have $200,000 in coverage at settlement, gives him fifteen days to cure the default by doing the following: You must send proof of fire and extended coverage to 180 that benefits both you and mefrom Ponderosa Road, Carlisle, PA, March 31, 2004, to present as required by the Agreement. (Emphasis added.) The notice did not allow Foster to cure the default by purchasing $200,000 in insurance within fifteen days, and/or by reimbursing Blessing for what he had paid for insurance from March 31, 2004 until it was cancelled on November 1, 2004. The notice required Foster to purchase $200,000 in coverage retroactive to March 31, 2004, two years and three months earlier. That is something that Foster could not do because even though there was no losses he could not buy fire and casualty insurance retroactively or was there any legitimate reason to do so. This problem was caused by Blessing not abiding by the installment sales agreement to begin with. Even when Foster subsequently purchased $200,000 in coverage, it did not cure the default, albeit beyond the fifteen day limit, in the impossible way demanded in the notice of June 27, Shovel Transfer and Storage, Inc. v. PLCB, 2006. In 739 A.2d 133 (Pa. 1999), the Supreme Court of Pennsylvania stated: -10- 06-4135 CIVIL TERM “It is a well settled rule of law that a party to a contract cannot escape liability under his obligation on the ground that the other party has failed to perform a condition precedent to the establishment of such liability or to the maintenance of an action upon the contract, where he himself has caused that failure.” (Citations omitted.) The forfeiture provision of Paragraph 11 of the installment sales agreement must be construed strictly. The demand to cure a default in order to avoid forfeiture cannot set forth a requirement that Foster could not meet because of the conduct of Blessing. Therefore, the agreement is not null and void and Blessing is not entitled to eject Foster from the farm. Furthermore, on the unique facts of this case, assuming that Foster breached the installment sales agreement by not purchasing the $200,000 insurance coverage at some point, and did not cure the default by purchasing it within fifteen days of the notice of default, we find that the breach is not material. Widmer Engineering, Inc. v. Dufalla In , 837 A.2d 459 (Pa. Super. 2003), the Superior Court of Pennsylvania, citing the Restatement (Second) of Contracts § 241 (1981), stated that the following factors should be considered in determining if a breach is material: a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; b) the extent to which the injured party can be adequately compensated for that part of the benefit of which he will be deprived; c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; d) the likelihood that the party failing to perform or offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; e) the extent to which the behavior of the party failing to perform or offer to perform comports with standards of good faith and fair dealing. -11- 06-4135 CIVIL TERM Applying these factors to the instant case, we find that: (a) while Blessing was denied the benefit of Foster maintaining $200,000 of casualty insurance on the buildings and on the farm, he (b) has suffered no loss other than the cost of the insurance that he maintained for seven months, a minor cost that he has not demanded but possibly could be recovered in a suit for damages; (c) Foster’s failure to obtain the insurance prior to the default would result in an absolute forfeiture of his interest in the valuable 116 acre farm to the great benefit of Blessing; (d) Foster has now obtained the $200,000 coverage on the property, thus curing his default, while the failure to obtain it at the time of the settlement was caused by Blessing; and (e) given the convoluted circumstances that resulted in Foster not obtaining the $200,000 coverage at settlement, and until well after he received the notice of default which he could not cure because of an impossible condition, his failure to perform did not constitute a complete lack of good faith and fair dealing. Under these circumstances, we find that any breach of the agreement by Foster regarding insurance is not material, that the minor financial loss caused to Blessing can possibly be recovered as damages, and that the non-material breach does not warrant a forfeiture under Paragraph 11 of the installment sales agreement. The agreement is not null and void and Blessing is not entitled to a judgment of ejectment. ORDER OF COURT AND NOW, this day of November, 2007, plaintiff’s complaint IS DISMISSED. for a judgment in ejectment, By the Court, Edgar B. Bayley, J. -12- 06-4135 CIVIL TERM Archie V. Diveglia, Esquire For Keith A. Blessing William P. Douglas, Esquire For Ralph L. Foster, Jr. :sal -13- KEITH A. BLESSING : IN THE COURT OF COMMON PLEAS OF : CUMBERLAND COUNTY, PENNSYLVANIA : V. : : RALPH L. FOSTER, JR. : 06-4135 CIVIL TERM IN RE: EJECTMENT BEFORE BAYLEY, J. ORDER OF COURT AND NOW, this day of November, 2007, plaintiff’s complaint IS DISMISSED. for a judgment in ejectment, By the Court, Edgar B. Bayley, J. Archie V. Diveglia, Esquire For Keith A. Blessing William P. Douglas, Esquire For Ralph L. Foster, Jr. :sal