Also known as:vendor & purchaser · vendors and purchasers · V&P · vendor-purchaser
Written by attorneys — see sources below.
The body of law governing contracts for the sale of real property from formation until closing. Equity treats the buyer as owner of the land and the seller as owner of the purchase money once a binding contract exists. A principal consequence is that risk of loss from casualty before closing passes to the buyer at contract formation in jurisdictions following the traditional rule.
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How its tested
Common Examples
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Fire Damage Before Closing
Valor Capital signed a binding contract to buy a warehouse from Voss Shipping for a fixed price with closing set ninety days later. The contract contained no risk-allocation clause. Thirty days after signing a fire destroyed the main building. Valor Capital refused to close at the original price. Voss Shipping sued for specific performance. Because the jurisdiction follows the traditional approach to risk of loss the buyer remains obligated to pay the full price and close despite the destruction.
Seller's Nondisclosure of Defects
Violet Vidal contracted to purchase a residence from Vincente Vukovic. Vukovic knew of a latent structural defect but did not disclose it. Vidal later discovered the defect and sued for rescission. The court held that the vendor's failure to disclose known material defects constituted fraud in the vendor-purchaser relationship and permitted the purchaser to avoid the contract.
Plaintiffs acquired ownership of the real property located in San Francisco on or about July 10, 1961, from defendants Nicholas Kotoff and Nell Kotoff. Defendant George Savage, a real estate broker, represented the sellers in the transaction. The sale was memorialized in a uniform agreement of sale and deposit receipt, attached to the complaint as Exhibit 1. This document acknowledged receipt of $1,000 toward a $21,000 purchase price for the property in its present state and condition. It contained a provision stating that no representations, guaranties or warranties of any kind or character have been made by any party hereto, or their representatives which are not herein expressed. Savage was to receive a commission of $1,000 from the sellers for his services.
The complaint filed on February 13, 1962, alleged that the defendants knew at the time of the sale that the building was in a state of disrepair, that the units contained therein were illegal, and that the building had been placed for condemnation by the proper officials of San Francisco. The plaintiffs did not know these facts. They did not discover them until November 1961. The defendants willfully and fraudulently failed to reveal the information. The plaintiffs purchased the property justifiably relying on the nondisclosure in the belief that the property was in legal tenantable and properly repaired condition as required by law. The complaint sought $5,000 in general damages and $10,000 in punitive damages based on the claim that the actual market value of the property was $5,000 less than it would have been in the condition as represented.
Defendant Savage filed a demurrer. The demurrer asserted that the complaint failed to state facts sufficient to constitute a cause of action. It also asserted that the complaint was ambiguous, unintelligible and uncertain. The demurrer specifically attacked the legal sufficiency of the facts pleaded on the ground that the exhibit showed the plaintiffs had offered to purchase the property in its present state and condition with no unexpressed representations. The trial court sustained the demurrer without leave to amend and entered judgment in favor of Savage.
Plaintiffs appealed from the judgment entered after the sustaining of the demurrer without leave to amend.
When does risk of loss pass from vendor to purchaser under the traditional doctrine?
Risk of loss passes to the purchaser at the moment a binding contract for the sale of land is formed. The purchaser must still pay the full price even if the property is destroyed before closing unless the contract provides otherwise.
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Does the vendor's duty to disclose known defects survive the contract signing?
Yes. A vendor who knows of a latent defect that affects the value or desirability of the property must disclose it to the purchaser. Failure to disclose constitutes actual fraud and allows the purchaser to rescind.
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How does equitable conversion affect the parties' creditors?
After contract formation the purchaser's creditors may reach the equitable interest in the land while the vendor's creditors may reach only the right to the purchase money.
Supporting sources
559 P.2d 1038 (Alaska 1976)
…many cases cited therein. See generally, Annot., 59 A.L.R. 632 (1929); An-not., 162 A.L.R. 556, 560-62 (1946); 77 Am. Jur.2d, Vendor and Purchaser, §§ 711 — 13. On the other hand, there is also authority which holds that a quitclaim grantee cannot be a good faith purchaser. See 28 Ore.L.Rev. 258, at 259 n. 2. See also the…