This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Whether a contract to sell realty upon which a building is situated is discharged by the destruction of the building after the contract of sale is made and before it is performed by the execution and delivery of a deed, is a question upon which there is some conflict of authority, depending, however, chiefly upon the effect which is to be given to the contract of sale as creating an equitable property right in the purchaser, and upon the extent to which the law will recognize such equitable property right.1 The courts agree substantially in saying that such contract is discharged if it is entirely executory and that the loss is to fall upon the owner;2 but they disagree as to the extent to which the contract is to be regarded as. purely executory and as to the ownership of the realty under such circumstances. According to the weight of authority, the purchaser acquires an equitable interest in such realty as soon as the contract of sale is entered into. The contract is therefore no longer purely executory - the purchaser has become the owner in equity; such equitable right is recognized at law, and, accordingly, the destruction of the building upon such realty does not operate as a discharge of the contract, and if the vendor is not in default and is ready, willing and able to perform, the purchaser can be compelled to perform in spite of such destruction.3 This rule has been applied even if the purchaser is not in possession of the realty, since it is held that the equitable interest of the purchaser conies' into existence when the contract of sale is made and not when he takes possession.4 If this theory of the interest of the purchaser is held consistently and if he is regarded as having an insurable interest in the realty, up to the full value of the buildings thereon, he can, of course, protect himself against such loss by insuring such interest.
8 Rosenthal v. Rambo, 105 Ind. 584, 3 L. R. A. (N.S.) 678, 76 N. E. 404.
1 See, The Burden of Loss as an Incident of the Right to the Specific Performance of a Contract, by William A. Keener, 1 Columbia Law Review 1.
2 Wilson v. Clark, 60 N. H. 352; Sew-ell v. Underbill, 197 N. Y. 168, 134 Am. St. Rep. 863, 27 L. R. A. (N.S.) 233, 90 N. E. 430.
3 England. Paine v. Meller, 6 Ves.
California. White v. Oilman, 138 Cal. 375, 71 Pac. 436.
Connecticut. Williams v. Lilley, 67 Conn. 50, 37 L. R. A. 130, 34 Atl. 765.
Maryland. Brewer v. Herbert, 30 Md. 301, 96 Am. Dec. 582.
New Jersey. Cropper v. Brown, 76 X. J. Eq. 406, 139 Am. St. Rep. 770, 74 Atl. 9S7; Fraternal Order of Eagles v. Weatherby, 82 N. J. Eq. 455, 88 Atl. 847.
New York. Sewell v. Underbill, 197 N. Y. 168, 134 Am. St. Rep. 863, 27 L. R. A. (N.S.) 233, 90 N. E. 430.
Ohio. Gilbert v. Port, 28 O. S. 276.
Oklahoma. Dunn v. Yakisb, 10 Okla. 388, 61 Pac. 926.
Pennsylvania. Peoples Street Ry. v. Spencer, 156 Pa. St. 85, 36 Am. St. Rep. 22, 27 Atl. 113.
In other cases the courts have insisted upon applying the legal theory of ownership to the exclusion of the equitable theory. The contract is regarded as purely executory, and the vendor is regarded as the owner. Where this theory prevails, the contract is held to be discharged by the destruction of the building, if the building formed a substantial part of the consideration.5
An intermediate position has been taken in some jurisdictions and it has been held that if the vendee is not in possession he is not to be regarded as the owner, and accordingly the contract is discharged by the destruction of the building, if the building is a material part of the consideration.6 This position is taken on the theory that the vendee was not permitted to exercise any right of ownership and that it would be inequitable to impose upon him a duty to be performed over which the vendor had complete dominion until the performance of the contract.7
If the vendee is willing to pay the full contract price, he may have specific performance in spite of the destruction of the buildings,8 even if he could have treated the contract as discharged if he had so elected.