Friday, December 9, 2016

Equitable Conversion

I've written a bit about equitable conversion here on the blog.  The general rule is important to note but an additional point that comes up in the practice questions is worth noting as well.  As is usual, the more practice questions you work through, the more angles you'll see as to each issue that could be tested, and the less likely it'll be that you'll face too many 'curve balls' on the exam. There are two components to doing well on the MBE: knowing the law and knowing how to apply the law.  As difficult as this test may seem, when you improve at these two components you will see your scores go up quickly and significantly.

Under the doctrine of equitable conversion, the risk of loss of realty passes to the buyer as soon as a contract of sale is executed between the buyer and seller.  But there is an additional point worth noting.  Even in those jurisdictions that choose not to follow the doctrine of equitable conversion (so that risk of loss would remain on the seller until title or possession is transferred to buyer), if there is destruction of an immaterial part of the realty prior to the time that the seller transfers title or possession to buyer, the seller can still enforce the contract but the price will be abated to account for the damage.  In other words, even though the risk of damage to the property remained with the seller, the buyer will not be able to use the fact that the property was damaged as a way to get out of the contract--the seller will still be able to enforce the contract because the damage was immaterial.

Finally, a growing number of states have adopted the Uniform Vendor and Purchaser Risk Act.  Importantly, this Act negates the doctrine of equitable conversion as it relates to risk associated with loss.  In other words, the risk of loss is retained by the seller in jurisdictions that follow this Act.

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