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20. If the seller prevails, what will be the most likely explanation?
A buyer validly contracted in writing to buy improved land from a seller. The contract had no contingencies and was silent as to risk of loss if there was damage to, or destruction of, property improvements between contract and closing, and as to any duty to carry insurance. As soon as the parties signed the contract, the seller (who had already moved out) canceled her insurance covering the land. The buyer did not know this and did not obtain insurance. A few days later, three weeks before the agreed closing date, the building on the land was struck by lightning and burned to the ground. There is no applicable statute. In an appropriate action, the buyer asserted the right to cancel the contract and to recover his earnest money. The seller said that because the risk of fire loss had passed to the buyer before the fire, the buyer must perform.
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A is incorrect. When a contract for the sale of land contains no contingencies, both the seller and the buyer have an insurable interest once the contract is signed. In this case, at the time the building was destroyed, the seller had the legal interest and the buyer had the equitable interest under the doctrine of equitable conversion.
B is incorrect. In a contract for the sale of land, absent a provision to the contrary, neither the seller nor the buyer has a duty to carry insurance. Accordingly, this option cannot accurately describe the basis for a court to find for the seller. Although jurisdictions differ on which party has the risk of loss, a finding for the seller in this case means the jurisdiction hearing the case places the risk of loss on the equitable owner of the property, the buyer, under the doctrine of equitable conversion.
C is incorrect. In a contract for the sale of land, absent a provision to the contrary, neither the seller nor the buyer has a duty to carry insurance. In this case, the seller's cancellation of the insurance would not transfer the risk of loss to the buyer and would not be a basis for a court to find for the seller. Although jurisdictions differ on which party has the risk of loss, a finding for the seller in this case means the jurisdiction hearing the case places the risk of loss on the equitable owner of the property, the buyer, under the doctrine of equitable conversion.