## Facts

- A property owner granted a multi-year option to purchase Orange County real estate for a stated price, exercisable by written notice by a specified date, unless earlier canceled.
- The option required an initial payment and four annual \$10,000 payments due July 1 of each year; the annual payments were not credited toward the purchase price.
- The contract stated that failure to pay on or before the due date would automatically cancel the option without further notice, and that time was of the essence.
- Escrow instructions provided that annual payments would be deposited with a title company and that, if a payment was not received by July 1 and the optionors gave notice to cancel, escrow would be terminated.
- The optionee timely paid the initial payment and the first two annual installments.
- In 1966, the optionee’s \$10,000 annual check was received one day late; the optionor rejected it and asserted the option automatically terminated.
- The optionee promptly tendered the payment to the escrow holder; the optionor again refused and maintained the option had been canceled.
- The optionee had made substantial expenditures developing adjacent land, allegedly increasing the value of the option property.
- The optionee sought declaratory relief that the option remained effective and requested relief from forfeiture under California Civil Code § 3275.

## Issues

1. Whether an optionee who makes an annual option payment one day late may obtain relief from forfeiture under California Civil Code § 3275 despite contract terms providing automatic cancellation and making time of the essence.
2. Whether § 3275 can apply to preserve rights under an option contract when the default is slight, non-willful, and the optionor can be fully compensated.

## Decision

- The California Supreme Court reversed the judgment for the optionor.
- The court held the optionee was entitled to relief from forfeiture under Civil Code § 3275.
- The court concluded the automatic-cancellation and time-is-of-the-essence provisions did not bar equitable relief where the statutory conditions were met.

## Legal Principles

- Civil Code § 3275 permits relief from forfeiture upon full compensation to the nondefaulting party, unless the breach is willful, grossly negligent, or otherwise makes relief inequitable.
- § 3275 may apply to option contracts when strict enforcement of a payment deadline would cause a disproportionate forfeiture from a minor, non-willful default.
- Contractual provisions declaring automatic termination and making time essential do not categorically preclude statutory relief from forfeiture.
- Where the optionor suffers no material prejudice from a brief delay and can be made whole through prompt tender and full performance, equity may prevent forfeiture that would function as a penalty.

## Conclusion

The court preserved the optionee’s rights notwithstanding a one-day-late annual option payment, holding that § 3275 authorized relief from forfeiture because the default was slight and non-willful, the optionor could be fully compensated, and strict enforcement would impose a disproportionate loss inconsistent with equitable limits on forfeiture.


Holiday Inns of Am., Inc. v. Knight, 70 Cal. 2d 327 (Cal. 1969)