## Facts

- Jean Sebastian contracted to buy a house and lot from Perl and Zona Floyd for $10,900, paying $3,800 down and agreeing to monthly installments of $120 plus taxes, insurance, and 8.5% interest.
- The installment land contract included a clause allowing the sellers, after a 60-day default, to terminate the contract and retain prior payments “as rent and liquidated damages.”
- Over about 21 months, Sebastian missed seven installments and paid $5,480 total rather than $6,320 due; about $4,300 (nearly 40% of the price) had been applied to principal.
- The Floyds sued for amounts allegedly due and to enforce the forfeiture clause and terminate the contract.
- Sebastian admitted default, sought denial of forfeiture, counterclaimed for recovery of amounts paid, and stopped further payments after suit on counsel’s advice.
- A master commissioner recommended forfeiture; the trial court adopted the recommendation, and the intermediate appellate court affirmed.

## Issues

1. Whether a forfeiture clause in an installment land sale contract, allowing the seller to terminate and retain all buyer payments upon default, is enforceable.
2. Whether the seller’s retained legal title under an installment land contract should be treated as a security interest requiring foreclosure-type enforcement and permitting redemption.

## Decision

- The Supreme Court of Kentucky reversed.
- The court held the forfeiture clause unenforceable in this context.
- The court treated the seller’s retained legal title as security only, equivalent to a lien comparable to a purchase-money mortgage.
- The proper remedy for default is a judicial sale/foreclosure-type proceeding, not contract termination with forfeiture of accumulated equity.
- The case was remanded for further proceedings consistent with this approach.

## Legal Principles

- In an installment land contract used to finance a purchase, equitable title passes to the buyer at contract formation; the seller’s retained legal title functions as security for payment.
- Because an installment land contract is economically equivalent to a purchase-money mortgage, mortgage protections apply, including the buyer’s right to redeem by paying the debt, interest, and allowable default-related expenses.
- A seller may not, upon buyer default, both repossess the property and retain substantial payments as “rent and liquidated damages” without foreclosure-type process; any surplus after satisfying the debt and expenses belongs to the buyer.
- Courts may refuse to enforce contractual forfeiture where it operates as an inequitable deprivation of substantial buyer equity in property serving as collateral.

## Conclusion

The Kentucky Supreme Court rejected strict forfeiture in installment land contracts and required sellers to enforce their security interest through foreclosure-type proceedings that preserve a defaulting buyer’s equity and right of redemption.


Sebastian v. Floyd, 585 S.W.2d 381 (Ky. 1979)