Gilles v. Sprout
| Decision Date | 31 March 1972 |
| Docket Number | No. 43134,43134 |
| Citation | 196 N.W.2d 612,293 Minn. 53 |
| Parties | Edward L. GILLES, Appellant, v. Leland C. SPROUT et al., Respondents. |
| Court | Minnesota Supreme Court |
Syllabus by the Court
Where an executory contract for the sale of land is silent as to which party shall carry insurance to protect against loss by fire of a dwelling on the land, and the vendee takes possession pursuant to the contract pending its performance, the insurance proceeds covering the loss collected by the vendor under a fire insurance policy, procured by him at his expense, should in equity and under the circumstances of this case stand as a substitute for the dwelling and be applied to reduce the balance of the purchase price owed by the vendee to the extent of the market value of the destroyed dwelling less reimbursement to the vendor for the cost of insuring the dwelling during the period of the vendee's possession.
Heard and considered en banc.
Bentley & Christianson, Red Wing, for appellant.
Dingle, Krieger & Patterson, Rochester, for respondents.
This is an equitable action for specific performance of an executory contract for the sale and purchase of real estate. The appeal is from a post-trial order denying relief to plaintiff-vendee. The trial court determined on stipulated facts that plaintiff-vendee, in possession of real estate under an executory sales contract which was silent with respect to the obligation of insurance, was not entitled to have credited in satisfaction of the balance of his purchase price the proceeds of insurance paid to the vendor upon a total loss by fire of a to the vendor upon a total loss by fire of a dwelling located upon the land, the insurance policy having been procured by, and at the expense of, the vendor. We disagree with the trial court's conclusion and reverse.
The essential facts, so far as they are revealed by the record, are stipulated. On October 5, 1967, through a real estate broker, defendants-vendors, Leland and Mary Sprout, 'sold and agreed to convey' to plaintiff-vendee, Edward Gilles, by a written 'EARNEST MONEY CONTRACT OF SALE' 40 acres of land upon which was located a dwelling house. The contract downpayment of $200 on the purchase price of $3,250 was paid into an escrow account of the broker pending examination of the abstract of title, with the balance to be paid on or before November 10, 1967, 'or as soon thereafter as a Warranty Deed conveying a marketable title to said land is tendered.' The contract further gave plaintiff possession of the premises on November 10, 1967, and provided that the vendors were to have a survey made, the expenses of which were to be shared by the parties.
Plaintiff went into possession at least by November 10, but for some reason not made a part of the record, payment of the balance of the purchase price was not made nor the sale completed on November 10. Presumably this was because the warranty deed was not tendered or bacause payment was, by agreement, held in abeyance pending completion of the survey. In any event, while the contract remained executory on February 11, 1968, the dwelling was accidentally destroyed by fire.
The contract was silent as to which of the parties must procure or maintain insurance on the dwelling. However, defendants, prior to the execution of the contract, did have what we assume was a $3,500 stated-value policy of fire insurance, which they maintained in force after execution of the sales contract. The policy provided that the loss would be payable to the Ben Gilmore estate and the Federal Housing Administration (mortgagees) and to defendants as their interest would appear if the dwelling should be destroyed. On February 27, 1968, the entire insurance proceeds were paid, on behalf of the vendors, to their mortgagees in satisfaction of the mortgage debt.
Plaintiff, now residing in a trailer house, continued in possession of the premises. Electing to specifically enforce the contract, plaintiff commenced this action seeking to have the insurance proceeds applied in satisfaction of the balance due on the contract. Defendants, by their answer and counterclaim, alleged that plaintiff had no right or interest in the insurance policy or its proceeds, that the risk of loss was on plaintiff, and that he had breached the contract. Their prayer for relief asked that plaintiff either be compelled to pay the balance of the purchase price or that the contract be rescinded. The trial court denied relief to plaintiff and ordered rescission of the contract on the ground that plaintiff had not secured a loan for payment of the balance of the purchase price as contemplated by the contract.
The determinative issue, as we see it, is: Where an executory contract for the sale of improved real estate has no provision for insurance against loss by fire and the improvement is accidentally destroyed by fire while the vendee, pursuant to the contract, is in possession pending its performance by the parties, should the insurance proceeds covering the loss collected by the vendor under a fire insurance policy, procured by him at his expense, be applied to reduce the balance of the purchase price owed by the vendee?
While we have not before directly faced the issue presented, numerous other states have, and the majority generally holds that where the vendee must bear the loss of an accidental destruction of the property pending completion of the sale, the vendor must credit the insurance proceeds to the contract price absent any contractual agreement to the contrary. See, Annotation, 64 A.L.R.2d 1402; Note, 39 Minn.L.Rev. 93, 101; 55 Am.Jur., Vendor and Purchaser, § 403. This court has at least declared, although not ruled, in favor of the majority rule. In Cetkowski v. Knutson, 163 Minn. 492, 204 N.W. 528 (1925), the vendee fraudulently procured the vendor-plaintiff's property under a contract for deed, took possession, and obtained insurance. A dwelling located on the property was accidentally destroyed while the contract for deed was in effect and before the vendor sought rescission. The vendor was awarded rescission and permitted to recover the insurance proceeds, and the insurance company appealed. Having ruled that the vendee had an insurable interest in spite of the fact the vendor could rescind the conveyance, the court determined that the vendee held the insurance proceeds in trust for the vendor. In short, the court held that the fraud by the vendee triggered rescission and that plaintiff was entitled to the proceeds 'as a substitute in equity' for the destroyed dwelling, which the vendee had a duty to restore to the vendor upon the rescission of the contract. 163 Minn. 496, 204 N.W. 530. In coming to that conclusion, the court acknowledged the rule that an insurance contract is personal between the insurer and insured but reasoned that...
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...upon the maxim that "equity regards and treats that as done which in good conscience ought to be done." Gilles v. Sprout, 293 Minn. 53, 59, 196 N.W.2d 612, 615 (1972) (quotation omitted). A party seeking reformation must prove that: (1) a valid agreement between the contracting parties expr......
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