In modern contracts for sale of real estate, especially in the large cities, there is usually inserted what is known as an "approval clause." This innocent looking clause usually provides that " the seller shall give and the purchaser shall accept such a title as" a specified or "any responsible "title guarantee company "will approve and insure."
Under somewhat similar clauses the courts were formerly quite unanimous, although possibly not wholly so, that before the title could be disapproved, there must be a reasonable foundation or basis for the disapproval, but, in New York at least, the more recent decisions are quite unanimous that under such a clause the specified title company may arbitrarily refuse to approve and insure the title and that this is sufficient ground to justify the vendee in refusing to accept the same unless the approval is prevented by the purchaser's own act.
We shall not discuss the question as to whether it is the vendor's or the vendee's duty to obtain the approval or disapproval of the title under such a clause, although that too has been an interesting controversy. Conveyancers generally favor the view that if the purchaser wishes to refuse the title, it is incumbent upon him to obtain the disapproval thereof by the specified company and that he does not have the right to refuse to accept the title merely because the vendor has not obtained the title company's approval. The "approval clause " mentioned is considered beneficial to the purchaser. The vendor rarely derives any benefit therefrom.
Such standard clauses are based on legal principles, as for instance the clause that the vendor assumes the risk of loss or damage by fire until the delivery of the deed. After the contract is entered into and signed, the purchaser acquires certain equitable rights and also responsibilities, and as the seller usually retains the fire insurance policies until actual delivery of the deed, the clause referred to is inserted in the contract to place definitely the liability for any loss occasioned by fire.
The general rule is that the vendee in a contract for the sale of land is entitled to any benefits or improvements inuring to the land after the date of the contract, and must bear any losses by fire or otherwise which occur without the fault of the vendor. This applies when the title is satisfactory and the contract is capable of being specifically performed by the vendor. Such is the English rule, and, although a contrary view is taken in some jurisdictions, the great weight of authority is in its favor.7 The English rule is followed in equity, and where the doctrine is maintained it is upon the theory that the contract makes the vendee the equitable owner, and courts of equity regard that which is agreed to be done as actually performed. The reason for the provision in the contract definitely providing upon whom the loss shall fall in case of fire, is therefore obvious.
7 Sewell v. Underbill, 197 N. Y. 168 (1910), where Am. & Eng. Ency. of Law, Vol. 29 (2d Ed.), p. 713, is referred to.