Facts: P purchased a building and land under a real estate contract for 175k. As required
by the sales contract, they paid 10k to D, the agent of the seller, at the time the contract
was signed. The balance was to be paid upon delivery of the deed, at which time the
purchasers would take possession of the property. Prior to the delivery of the deed, a
water line broke in the sprinkler system, and water ran throughout the building and into
two adjoining businesses. The purchasers had intended to renovate the building for uses
as a medical building. P was informed by an architect and an engineer that the
remodeling of the building could be delayed as much as four to six weeks. P asked the
vendors to either correct the water damage or permit the contract to be rescinded. The
vendors declined to repair the damage and sold the building to another for 140k. P then
instituted this action for rescission of the contract and the return of their down payment.
Trial court ruled that the purchasers must bear the risks of loss both to the building and
for the water damage to the adjoining property owned by third parties.
Holding: Reversed.
– the doctrine of equitable conversion provides there where a contract for the sale of
land does not contain a provision allocating the risk of loss and the property is
damaged by fire or some other casualty not do to the fault or neglect of the
vendor, the risk of the loss is on the purchaser (assuming the vendor has good
– the trial court was of the view that the contract language stating that the owner is
responsible for said property until the deed has been delivered to said purchaser
was not sufficient to cast the responsibility to the vendors. This conclusion is
based, in part, on testimony of a sales agent for the vendor that this language
pertained only to vandalism.
– The court disagrees with this. The contract was on a printed form and the
language was free from ambiguity. The burden of risk of lose is on the vendor.
– The provision “Purchaser to carry enough fire insurance to protect Self” should
not be read to place the risk of loss on the purchasers. The provision is nothing
more than an acknowledgement of the general rule that both parties to a contract
for the sale of real property have an insurable interest
– An “as is” condition is to be interpreted to mean that the purchasers cannot make
any claim against the vendors to make any improvements to the building from the
condition as it was in at the time the contract was signed. The language cannot be
read to remove the risk of loss to the vendors. The purchaser must take the
premises covered in the real estate sales contract in it present condition as of the
date of the contract.