Risk Of Loss: Equitable Conversion

A. Majority Rule

The buyer bears the risk of loss between the time the contract was signed and the closing.

1. Note:
This rule relies on the doctrine of equitable conversion that establishes equitable ownership in land at the time a contract is signed. Legal title remains with the seller who has a lien for the sale price. The reasoning of this rule is that a buyer has a right to specifically enforce the contract after the signing. “Equity regards as done, that which ought to be done.”

2. Exceptions
In the following two situations, risk of loss will not pass to the buyer even though the majority rule is followed.

a. Title was not marketable at the time the contract was signed.

b. The loss was caused by the seller’s negligence.

B. Minority Rule

The risk of loss remains with the seller until legal title is conveyed regardless of who retains possession between signing and closing.

C. Uniform Vendor and Purchaser Risk Act (another minority view)

Seller bears the risk of loss until the possession or title shifts to the buyer.