Also known as: equitable conversion · doctrine of equitable conversion
Written by attorneys · grounded in primary & secondary sources — see below
A doctrine under which, upon formation of a binding contract for the sale of land, equity treats the buyer as the owner of the land and the seller as the owner of the purchase money. The seller holds legal title only as trustee for the buyer. This recharacterization determines the allocation of risk of loss from casualty before closing and affects the passage of benefits and burdens during the executory period.
CloudForge signed a binding contract to buy an office campus from Metro Properties for a fixed price with closing set sixty days later. Lightning struck the main building two weeks later and caused extensive fire damage. Metro tendered a deed and demanded the full price. Under equitable conversion the risk of loss had already shifted to CloudForge at contract formation, so the court required CloudForge to close at the original price.
Brightline Development entered a binding contract to purchase an apartment complex from Harborview Real Estate Trust. An electrical fire gutted one building before closing. Harborview collected insurance and tendered performance. Because equitable conversion had already treated Brightline as owner at contract formation, the court ordered specific performance at the contract price despite the damage.
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Green Valley Cooperative contracted to buy Maria's farm and irrigation system for a fixed price. A tornado destroyed three barns and the irrigation system three weeks after signing. Maria tendered a deed and sued for the full price. Equitable conversion placed the risk on Green Valley at contract formation, so the court granted specific performance at the original price with the property in its damaged condition.
Peak Aero contracted to buy a hangar and testing field from Fair Aero. A windstorm tore off the hangar roof and disabled specialized cranes before closing. Fair Aero held legal title but had already given Peak Aero limited access. Equitable conversion meant Peak Aero bore the risk as equitable owner, so the court required Peak Aero to close at the contract price while Fair Aero held title only as trustee.
Horizon Builders contracted to buy a vacant parcel from Summit Landholdings for a mixed-use project. Heavy rains caused a sinkhole one month after signing and before closing. Horizon refused to close and claimed the natural disaster excused performance. Because the jurisdiction applied equitable conversion at contract formation, the court held that the risk had shifted to Horizon and ordered specific performance at the agreed price.
In jurisdictions following the majority approach, risk of loss passes to the buyer at the moment a binding contract for the sale of land is formed. The buyer is treated as the equitable owner and therefore bears casualty loss even though legal title remains with the seller until closing.
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Yes. The seller retains bare legal title but holds it only as trustee for the buyer. This trustee status affects risk of loss, creditor rights, and the allocation of rents and taxes during the executory period.
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No. Under the majority rule the buyer may not rescind or demand a price reduction merely because improvements are destroyed after contract formation. The buyer must still pay the full contract price and takes the property in its damaged condition.
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Insurance proceeds may be allocated by the contract or by equitable rules. The buyer who bears the risk under equitable conversion is generally entitled to any proceeds that compensate for the loss, subject to the seller's remaining security interest in the purchase price.
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…of casualty losses on the purchaser of land while the purchase contract remained executory. This allocation was derived from the doctrine of equitable conversion. “Equity regards as done that which ought to be done.” The rule could always be modified by express agreement. It survives today where it does survive[^maj-9] largely by reason of its…