"A decree for the specific performance of a contract is not a matter of right, but of grace, granted on equitable principles, and rests in the sound discretion of the court."
Sanford v. Breidenbach
Plaintiffs agreed to sell defendant a house for $26,000. Possession was to be delivered on title transfer, although defendant have keys and had entered the house to look at the furnace and show the house to friends. The contract required plaintiffs to give defendant easements prior to the title transfer. Before the title transferred, the house was destroyed by fire. Defendant then had Evans Savings Association not to file the deed transferring title to him. Both parties had insurance on the house. Plaintiffs' insurance company canceled his policy without permission or notice upon learning the property was to be sold.
Plaintiff sued defendant, his insurance company, and the real estate company holding the $12,000 down payment. The money was then placed in escrow, and plaintiff then primarily sought enforcement of the agreement. Defendant cross-claimed plaintiffs' insurance company, claiming that it was responsible for plaintiffs' loss.
Trial court determined that plaintiffs were not entitled to specific performance, but that he was entitled to recover from each insurance company, divided with defendant's being ²²⁄₄₂ liable and plaintiffs' being ²⁰⁄₄₂ liable—a ratio proportional to each party's policy size.
Was plaintiff entitled to force defendant to buy the house?
Who was liable to pay for the house?
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- Page 703, Paragraph 5
"Where contract for exchange of real estate contained no provision as to who should bear the loss in case any building on either of properties should be destroyed before deeds were executed, the purchaser must be regarded as equitable owner of property, and loss by reason of fire destroying building before execution of deed falls on him."Page 703, Paragraph 6
In general, the rule under the doctrine of equitable conversion is that a contract to sell real property vests the equitable ownership of the property in the purchaser; and thus, where there is any loss by a destruction of the property through casualty during the pendency of the contract (neither party being guilty of causing the destruction), such loss must be borne by the purchaser.Page 703–704
[E]quitable conversion by the purchaser, in a contract to convey real property, does become effective in those cases in which the vendor has fulfilled all conditions and is entitled to enforce specific performance, and the parties, by their contract, intend that title shall pass to the vendee upon the signing of the contract of purchase.
At the time the specific performance was sought, the septic easement had not yet been transferred, which was listed as happening before transfer of title. Because this material part was not complied with, it is apparent that the contract was not completed.
Possession had not been given to defendant. Giving him keys and letting him look at the furnace are not enough to constitute a surrender of possession. Since plaintiffs could not enforce the contract and nothing in the contract provided that the vendee bear the risk of loss, there is no basis to claim that equitable conversion existed to place the burden of loss upon defendant.
There was no question that plaintiffs' insurance policy was still valid. As plaintiffs still had possession of the property, he had the risk of loss, which his insurer must cover. Up until defendant refused to complete the contract, he had an insurable interest, but it did not insure plaintiffs. It only covered defendant and others named in the policy. Defendant suffered no loss as his escrow money was returned and because he is not required to purchase.
Defendant was not entitled to specific performance.
Plaintiffs' insurance company was liable to pay for the property.