Sebastian v. Floyd

Supreme Court of Kentucky · 1979 · Property

585 S.W.2d 381 (1979)

Updated July 23, 2026

PropertyInstallment land sale contractsForfeitureEquitable conversionJudicial saleinstallment land contractforfeiture clauseequitable title

Facts

Jean Sebastian agreed to buy a house and lot from Perl and Zona Floyd under an installment land sale contract for $10,900, paying $3,800 down and the remainder in monthly installments, taxes, insurance, and 8.5% interest. The contract provided that if Sebastian missed a monthly payment and remained in default for 60 days, the Floyds could terminate the contract and retain all prior payments as rent and liquidated damages. Over 21 months, Sebastian missed seven installments and paid a total of $5,480, of which $4,300 had been applied to principal. The Floyds sued to collect amounts due and to enforce the forfeiture clause, while Sebastian admitted default but asked the court not to enforce forfeiture.

Issue

May a seller enforce a clause in an installment land sale contract that terminates the contract and allows the seller to retain all of the buyer's prior payments upon the buyer's default? Or must the seller instead proceed by judicial sale as with a mortgagee?

Rule

In an installment land sale contract used to finance the buyer's purchase of property, the seller retains only bare legal title as security for payment while equitable title passes to the buyer. Because the seller's interest is analogous to a lien or mortgage, the seller's remedy upon the buyer's default is a judicial sale of the property, not enforcement of a forfeiture clause that cuts off the buyer's equity and payments.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Lexington, Nora Benton agreed to buy a duplex from Caleb and Mira Sloan under a 12-year contract. She paid a large down payment and made monthly installments for three years, but then fell behind; the contract states that if she remains in default for 45 days, the Sloans may cancel the agreement and keep all prior payments as rent and liquidated damages.

If the Sloans sue after Nora's default, which remedy is most consistent with the governing rule?

Explanation. When an installment land sale contract is used to finance the purchase, equitable title passes to the buyer and the seller retains only bare legal title as security. Because the seller's interest is treated like a lien analogous to a mortgage, default must be enforced through judicial sale rather than contractual forfeiture of the buyer's prior payments and equity. The rule does not require automatic return of all payments; it requires sale and distribution of proceeds.