Brush Grocery Kart v. Sure Fine Market, No. 00CA0711.

• Decision Date: 01 March 2001
• Docket Number: No. 00CA0711.
• Citation: 30 P.3d 810
• Parties: BRUSH GROCERY KART, INC., a Colorado corporation, Plaintiff-Appellant, v. SURE FINE MARKET, INC., a Colorado corporation, Defendant-Appellee.
• Court: Colorado Court of Appeals

30 P.3d 810

BRUSH GROCERY KART, INC., a Colorado corporation, Plaintiff-Appellant, v. SURE FINE MARKET, INC., a Colorado corporation, Defendant-Appellee.

No. 00CA0711.

Colorado Court of Appeals, Div. III.

March 1, 2001.

Certiorari Granted September 10, 2001.

Edward L. Zorn, Fort Morgan, CO, for Plaintiff-Appellant.

Anderson and Chapin, P.C., Robert B. Chapin, Brush, CO, for Defendant-Appellee. Opinion by Judge NIETO.

Plaintiff, Brush Grocery Kart, Inc. (Grocery Kart), appeals that part of a judgment determining that the risk of loss from damage to real property that occurred after plaintiff exercised an option to purchase the property and before transfer of legal title fell on plaintiff. We affirm.

Grocery Kart leased real property from defendant, Sure Fine Market, Inc. (Sure Fine). A provision of the lease granted Grocery Kart an option to purchase the property. The parties agree that Grocery Kart exercised the option according to the terms of the agreement. The parties also agree that the option agreement was a binding contract.

When the parties could not agree on a purchase price in the manner provided in their agreement, Grocery Kart filed this action seeking, among other things, the appointment of a master to determine the purchase price pursuant to the contract. While the action was pending, the lease expired, and Grocery Kart vacated Sure Fine's premises. Grocery Kart then allowed the insurance on the property to lapse and sent notice of this to Sure Fine. The parties agree that the agreement contained no provision requiring either party to insure the premises, and that the property was left uninsured. After Grocery Kart vacated the property, but before the transfer of legal title, a hail storm caused substantial damage to the property.

The parties then raised the issue of the proper allocation of this loss, and they tried that issue in a trial to the court. The trial court held that the agreement did not make provision for a duty to insure the property, and therefore neither party had a duty to obtain insurance. The court then allocated the risk of loss to Grocery Kart by applying the doctrine of equitable conversion. This appeal followed. Grocery Kart contends that the risk of loss should fall upon Sure Fine because, at the time of loss, Grocery Kart did not have possession of the property, and Sure Fine was the legal owner of the property. We are not persuaded.

In the absence of a duty to provide insurance in a contract for the sale of real estate, no such duty will be implied for either the seller or the purchaser. Wiley v. Lininger, 119 Colo. 497, 204 P.2d 1083 (1949).

Colorado has long recognized the doctrine of equitable conversion. See Dwyer v. District Court, 188 Colo. 41, 532 P.2d 725 (1975)

; Konecny v. von Gunten, 151 Colo. 376, 379 P.2d 158 (1963); Chain O'Mines, Inc. v. Williamson, 101 Colo. 231, 72 P.2d 265 (1937). The doctrine of equitable conversion is based on the equitable principle "that equity regards that as done which ought to be done." Chain O'Mines, Inc. v. Williamson, supra, 101 Colo. at 234, 72 P.2d at 266. The doctrine provides that at the time parties have entered into a binding contract for the sale of real estate, equitable title to the real estate vests in the buyer, and the seller's interest is converted into personal property, i.e., a right to obtain payment of the purchase price. However, in an option contract, the equitable conversion occurs when the option is exercised, not when the contract becomes effective. This is so because there is no duty to buy or sell until the option is exercised. After the option is exercised, the contract has the same effect as an agreement to buy and sell property. Chain O'Mines, Inc. v. Williamson, supra.

Wiley v. Lininger, supra, addressed the allocation of the risk of loss in a contract for the sale of land. There, the buyer occupied the property under an installment land contract that had no provision for allocating the risk of loss occurring between the time the contract became effective and the time legal title was transferred to the buyer. The supreme court held:

While there is some authority to the contrary, the majority rule seems to be that the vendee under a contract for the sale of land, being regarded as the equitable owner, assumes the risk of destruction of or injury to the property where he is in possession, and the destruction or loss involved is not proximately caused by the negligence of the vendor. (See, annotation at 101 A.L.R., page 1241.) We adopt this majority rule.

Wiley v. Lininger, supra, 119 Colo. at 502, 204 P.2d at 1086.

Grocery Kart argues that the holding in Wiley is distinguishable because there the buyer had possession of the property. While Wiley is factually different on this point, the supreme court did not indicate that possession was a controlling factor in its holding. As support for its holding, the Wiley opinion cites Annot., 101 A.L.R. 1241 (1936), as authority for the majority rule it adopted. In that annotation, the majority rule is stated without reference to possession as a factor.

The allocation of this risk of loss in circumstances where the buyer is not in possession has not previously been addressed by a Colorado appellate court. Most jurisdictions that have addressed the issue have held, based on the doctrine of equitable conversion, that the purchaser must bear the risk. Those jurisdictions

conform to the "equitable conversion" principle that the purchaser under an executory contract possesses, in fact and in substance, the real ownership of the land and, therefore, must also, in the absence of an agreement to the contrary, bear the risk of loss for a casualty

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