Opinion
41353.
ARGUED JUNE 9, 1965.
DECIDED JUNE 22, 1965. REHEARING DENIED JULY 12, 1965.
Action on contract. Peach Superior Court. Before Judge Long.
Culpepper Culpepper, George B. Culpepper, Jones, Bird Howell, Eugene T. Branch, F. M. Bird, for plaintiffs in error.
Aultman, Hulbert, Buice Cowart, Roy N. Cowart, R. Avon Buice, contra.
When a vendor and vendee have entered into a binding contract for the sale of real estate and the vendor is willing and able to consummate the sale, and before the vendor executes a conveyance, a substantial part of the realty is destroyed without the fault of either party, decreasing the value of the property, the loss falls upon the vendee.
ARGUED JUNE 9, 1965 — DECIDED JUNE 22, 1965 — REHEARING DENIED JULY 12, 1965.
In this case the defendant assigns error on judgments of the trial court overruling its general demurrers to the plaintiffs' petition, sustaining the plaintiffs' general demurrer to the defendants' cross action, and granting the plaintiffs' motion for summary judgment.
The plaintiffs' petition and the parties' agreed statement of facts show: On December 23, 1963, the parties entered into a contract in which the plaintiffs agreed to purchase described real estate from the defendants for $120,000, and the plaintiffs paid $10,000 as earnest money, the contract specifying the terms for payment of the balance of the purchase price. On December 31, 1963, and January 1, 1964, while the defendants were still in possession of the property and before they had tendered or executed a deed to the plaintiffs, an ice storm damaged all the pecan trees upon the real estate, which reduced the fair market value of the real estate by at least $32,000. The contract provided that the sale was to be consummated, an additional cash payment made by the vendee, and the property conveyed to the vendee before February 1, 1964, and that the vendor should have the right to retain possession until February 1, 1964, for the purpose of gathering pecans. Before February 1, 1964, the vendee notified the vendor that it elected to rescind and would not consummated the contract because of the damage to the pecan trees, and demanded the return of the earnest money. The defendants notified the plaintiffs that they were willing and able to perform and called upon the vendee to perform the contract, and did not return the earnest money. The petition prayed for rescission of the contract and recovery of the earnest money.
The cross action contends that the defendants are entitled to damages for the plaintiffs' failure to perform their contract, by retention of the $10,000 earnest money and judgment for an additional $22,000 against the plaintiffs.
The facts show a destruction of a substantial part of the real estate constituting the subject matter of the contract occurring between the date of the contract and the time fixed for performance without the fault of either party. The question where the loss must fall in these circumstances can be determined by the parties themselves by provisions in the contract. In this case the contract did not contain an agreement between the parties upon this subject and the court must decide the question.
It was established in England in 1801 that after a contract for the sale of realty and acceptance of title the risk of loss is upon the vendee. Paine v. Meller, 6 Ves. 349, 31 Eng. Rep. 1088; cited with approval in Phinizy v. Guernsey, 111 Ga. 346, 349 ( 36 S.E. 796, 50 LRA 680, 78 ASR 207); 3 American Law of Property, 90, § 11.30; 92 CJS 174, § 295. "The rule is based on the principle that the contract gives to the purchaser in fact and substance the real ownership of the land, the vendor retaining in his own right possession, rents and profits for the brief interval before performance, and the legal title as security for the purchase money." Walsh on Equity 440, § 96. As a result of the rule, the vendee is entitled to the proceeds arising from condemnation proceedings. Fulton County v. Amorous, 89 Ga. 614 (3) ( 16 S.E. 201). "This rule, however, is not applicable unless there is an ability as well as a willingness on the part of the vendor to convey, the purchaser not being considered as the owner from the date of the contract unless the vendor is prepared to convey a clear title and is not in default." Phinizy v. Guernsey, 111 Ga. 346, 348, supra; Mackey v. Bowles, 98 Ga. 730 ( 25 S.E. 834).
There is a minority view in this country, known as the Massachusetts rule, which holds that there is a failure of consideration which turns the vendee loose and leaves the vendor with his ruins. Libman v. Levenson, 236 Mass. 221 ( 128 N.E. 13). As a practical matter, the latter rule is more expedient, and more in accord with practical common sense and business practices. The inaccuracy of the theory of "Equitable Conversion" was exposed by the late Chief Justice, then Dean Stone, in his oft-cited article, "Equitable Conversion by Contract," 13 Co. L. Rev. 369, 386-388 (1913). And its inconsistency with natural justice, practical advantage, and the principles of law in analogous cases was exposed by Williston in "The Risk of Loss After An Executory Contract of Sale in the Common Law," 9 Harvard L. Rev. 106, 118-123. It is also interesting that the Massachusetts rule was eventually adopted in England by Parliament in the Law of Property Act of 1925, § 47. Nevertheless, the prevailing law of this country and in this State is that the risk of loss is normally upon the vendee who is in substance the owner of the property.
The vendee in this case takes the position that possession of the property at the time of loss should be the criterion for determining whether the loss should be borne by the vendee or the vendor. This was not true at common law nor "has any court of last resort ever reached this result." See Agnor, "Risk of Loss In The Vendor and Purchaser Relation," 11 Ga. B. J. 401, 405. "Casual statements, that the loss falls on the purchaser who has taken possession as in Mackey v. Bowles, 98 Ga. 730, 734 ( 25 S.E. 834) (1896) [also Phinizy v. Guernsey, 111 Ga. 346 ( 36 S.E. 746) and Wingfield v. Oakes, 93 Ga. App. 783 ( 92 S.E.2d 826)] do not mean that he does not assume the risk until he has taken possession." Walsh on Equity, 446, § 97, fn. 78. This is also in accord with the view of the late Dean Pound who, referring to possession at the time of loss as a criterion, says: "There is practically no authority for this view. . . Possession is not material with respect to the passing or existence of either legal or equitable title to land. Why then should it be material as to the incidents of equitable title?" Pound "The Progress of the Law," 33 Harvard L. Rev., 813, 826, fn. 68. Though it may reasonably be argued that possession as well as equitable title in the vendee should be necessary to place upon him losses which the party in possession has the power to protect against, this reasoning is not necessarily applicable to losses caused by an act of God. DeFuniak, Handbook of Modern Equity 218, § 93. Professor Agnor's article, supra, takes the position that the English Rule of Paine v. Meller, supra, is the law of Georgia and can only be changed by a statute similar to the Uniform Vendor and Purchaser Risk Act.
Neither party has referred us to a case and we have found none in which a Georgia court has decided which party — vendor or vendee — takes the loss when improvements on realty are substantially damaged after a binding contract of sale, when the vendor is still in possession and is able to convey title. The Georgia Supreme Court has decided or held as the basis for decision that the loss falls on the vendor when the contract between the parties is not binding ( Walker v. General Ins. Co., 214 Ga. 758, 107 S.E.2d 836), or when the vendor is not able to convey title ( Mackey v. Bowles, 98 Ga. 730, supra; Phinizy v. Guernsey, 111 Ga. 346, supra), and that the loss falls upon the vendee when the vendor is able to convey title. Bruce v. Jennings, 190 Ga. 618 ( 10 S.E.2d 56). Accord Wingfield v. Oakes, 93 Ga. App. 783, supra. Only in the Phinizy case, supra, was the vendor in possession at the time of the loss. Opinions in Georgia cases contain the following statement: "It is the general rule that, where the purchaser goes into possession under a binding executory contract for the sale of improved realty which the seller is able to convey, but where, before the transfer of the legal title is consummated, the improvements are destroyed by fire without the fault of either party, the loss falls on the purchaser as the owner of the equitable title." Bruce v. Jennings, supra, 620; Mackey v. Bowles, supra, 734; Wingfield v. Oakes, supra, 785. The reason for the statement of the rule in this language may be that each of the earlier cases ( Mackey, Phinizy, Bruce, supra) involved a bond for title. "The most common form taken by transactions of this kind is for the vendor to receive from the vendee purchase-money notes and to execute to him a bond for title, i.e., a written agreement to convey him good and sufficient title to the land when the purchase-money notes have been paid." Powell on Land Actions, 443, § 373. The vendee would normally always be in possession after the execution of the bond for title and this relationship would exist for a considerable time depending upon the period of the loan.
The opinion in the Phinizy case, supra, p. 349, states: "If the contract has been so far completed that the vendee is to be treated as the owner of the premises, then the loss falls upon him, as was the case in Paine v. Meller, 6 Ves. Jr. 349, where it was held that when there was a contract for the sale of houses, which on account of defects in the title could not be completed, the treaty, however, proceeding upon a proposal to waive the objections upon certain terms, and the houses were burned before the conveyance, the purchaser was bound if he accepted the title; and the fact that the vendor allowed insurance on the houses to expire on the day on which the contract was originally to have been completed, without notice to the vendee, made no difference." This dictum appears to be regarded as an adoption by the Georgia Supreme Court of the view that when there is a binding agreement and the vendor is able to convey title "equity regards the vendor as a trustee of the legal title for the benefit of the vendee, while the latter is looked upon as a trustee of the purchase-money for the benefit of the former," and that "if the contract of sale is so far completed that the vendors would have held the legal title as trustees for the vendee," the vendee would take the loss, whether or not he was in possession. Bruce v. Jennings, supra; Agnor, Ga. Bar Journal, 401, 402. See Maddox v. Rowe, 23 Ga. 431, 435 ( 68 AD 535); 55 Am. Jur. 782, § 356.
Accordingly, since it appears in this case that the parties had entered into a binding contract for the sale of real estate, which the vendor was willing and able to consummate at the time of the destruction of a substantial part of the realty, the loss falls on the vendee.
The cases cited in the plaintiffs' brief do not support their argument that the contract was not binding.
The trial court erred in overruling the defendants' general demurrer to the petition, in sustaining the plaintiffs' general demurrer to the defendants' cross action, and in granting the plaintiffs' motion for summary judgment.
Judgment reversed. Bell, P. J., and Frankum, J., concur.