Question

 Buyer and Seller entered into a written agreement for Buyer to purchase real property, which property included a home, from Seller. Under the terms of the purchase agreement, the risk of loss "shall remain with Seller until delivery of title." The purchase agreement was entered into on May 15 and called for closing on June 1, though the agreement did not say that time was of the essence. Seller chose this date for closing, in part, because that was the final day of coverage for Seller's property insurance policy, which insured the home.

 Because the Buyer was still arranging for financing, the parties did not close on June 1. Nevertheless, Seller did not renew his property insurance and the policy expired on June 1. Buyer notified Seller that he would be ready to close on June 3. On June 2, however, lightning struck the home and bumed it to the ground. Buyer and Seller are now litigating who should bear the loss resulting from the destruction of the home.

 What is the most likely outcome of the case?

 Answers A - D

 A Buyer should bear the burden of the loss because of the doctrine of equitable conversion.

 B Buyer should bear the burden of the loss because without Buyer's delay Seiller would have delivered title to Buyer on June 1.

 C Seller should bear the burden of the loss because of the terms of the purchase agreement.

 D Seller should bear the burden of the loss because Seller failed to insure the home.

Answer 1

Option 'C' should be the most appropriate answer because the purchase agreement clearly stated- "the risk of loss shall remain with the seller until the delivery of title" and also the agrrement did not say that "time was of the essence". Hence, the buyer took his own time to arrange for funds. To this, the seller had also agreed because he was willing to wait for those extra 2 days (as requested by the buyer). Otherwise, he could have cancelled the agreement for not getting paid on the due date.

The seller knew that the insurance policy would expire on June 1. Therefore, he should have renewed his policy beforehand or on the same day. But he did not do so because he couldn't foresee the natural calamity (lightning) on June 2 and thought that why should he spend money on the property when it was to be sold just after 2 days i.e. on June 3. It is due to the negligence of the seller, that no compensation could be claimed for the house. And because the risk of loss was to be borne by the seller until the transfer of title, he will be sole bearer for the loss of property.

The buyer comes clean for the fact that he had no right on the property because the title of ownership was not to be transferred to him until he pays in full to the seller.