B-128519, AUGUST 7, 1956, 36 COMP. GEN. 90

B-128519, AUGUST 7, 1956, 36 COMP. GEN. 90

SALES - PASSAGE OF TITLE - DAMAGE TO REALTY AFTER CONTRACT OF SALE BUT BEFORE DELIVERY OF DEED LOSS AS A RESULT OF HURRICANE DAMAGE WHICH OCCURRED BETWEEN THE DATE OF EXECUTION OF A CONTRACT OF SALE OF GOVERNMENT PROPERTY LOCATED IN VIRGINIA AND THE DATE OF DELIVERY OF THE DEED MUST BE BORNE BY THE PURCHASER UNDER THE MAJORITY RULE, WHICH IS FOLLOWED IN VIRGINIA, THAT THE EQUITABLE OR BENEFICIAL TITLE PASSES UPON EXECUTION OF A CONTRACT OF SALE IN THE ABSENCE OF ANY PROVISIONS TO THE CONTRARY.

TO LESTER H. THOMPSON, FEDERAL HOUSING ADMINISTRATION, AUGUST 7, 1956:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 29, 1956, YOUR REFERENCE AC C, TRANSMITTING BUREAU VOUCHER NO. 64200, BUREAU SCHEDULE NO. 4384, FOR $3,487.17, IN FAVOR OF HARVIE ROAD ESTATES, INCORPORATED, RICHMOND, VIRGINIA, AND REQUESTING A DECISION AS TO WHETHER THE VOUCHER MAY BE CERTIFIED FOR PAYMENT. THE AMOUNT CLAIMED REPRESENTS THE COST OF LABOR AND MATERIALS FOR REPAIRING DAMAGE CAUSED BY FLOOD WATERS TO THE PROPERTIES SOLD TO THE PAYEE.

THE DAMAGE OCCURRED BETWEEN JUNE 28, 1955, THE DATE OF THE EXECUTION OF THE CONTRACT OF SALE AND PURCHASE, AND AUGUST 12, 1955, THE DATE OF DELIVERY OF THE DEED. IT IS STATED THAT DURING THE DAY OF AUGUST 11, 1955, A HURRICANE SWEPT THE ATLANTIC COAST AREA AND THAT THE ACCOMPANYING HEAVY RAINFALL CAUSED A BREAK IN THE BASEMENT WALL OF THE PROPERTY. THIS PERMITTED WATER TO POUR INTO THE BASEMENT DURING THE NIGHT OF AUGUST 11 AND THROUGH THE FOLLOWING DAY. THE FLOOD WATERS DAMAGED THE WALLS AND THE HEATING PLANT LOCATED IN THE BASEMENT AND THE INVOICES ATTACHED TO THE VOUCHER SHOW THAT IT COST THE PURCHASER $3,487.17 TO REPAIR SUCH DAMAGE. IT IS STATED THAT SINCE THE FLOOD WATERS DID NOT SUBSIDE UNTIL SEVERAL DAYS AFTER THE ACTUAL TRANSFER IT WAS IMPOSSIBLE TO DETERMINE THE PORTION OF THE DAMAGE THAT ACTUALLY ACCRUED UP TO THE HOUR OF DELIVERY OF THE DEED. IN THIS CONNECTION, IT IS STATED THAT THE FEDERAL HOUSING COMMISSIONER REMAINED IN POSSESSION AND CONTROL OF THE PROPERTY UNTIL AUGUST 12, 1955, WHEN THE DEED AND POSSESSION OF THE PROPERTY WERE DELIVERED TO THE PURCHASER.

BY THE TERMS OF THE ABOVE CONTRACT, THE FEDERAL HOUSING COMMISSIONER, AS SELLER ACTING THROUGH HIS REPRESENTATIVE, AGREED TO SELL THE INVOLVED PROPERTY TO DR. C. M. MCCOY AND WADE M. MILES, JR., AS PURCHASERS, ACTING ON BEHALF OF HARVIE ROAD ESTATES, INC., A CORPORATION TO BE FORMED BY THEM. THE AGREED PURCHASE PRICE IS STIPULATED AT $545,907. THE PURCHASERS WERE REQUIRED TO DEPOSIT $25,100 IN CASH WITH THE SELLER AS EVIDENCE OF GOOD FAITH AND TO PROTECT THE SELLER AGAINST LOSS OR DAMAGE IN THE PREMISES. AN ADDITIONAL AMOUNT OF $20,807 WAS REQUIRED TO BE PAID BY THE PURCHASERS TO THE SELLER AT CLOSING OR PRIOR THERETO AT ELECTION OF THE PURCHASERS. AT CLOSING THE PURCHASERS WERE REQUIRED TO EXECUTE A NOTE SECURED BY A MORTGAGE AS THEREIN PROVIDED. PARAGRAPH 10 PROVIDED, AS FOLLOWS:

NO REPRESENTATIONS ARE MADE BY THE SELLER AS TO THE PHYSICAL CONDITION OF THE PROPERTY TO BE CONVEYED AND PURCHASER AGREES TO ACCEPT THE SAME IN ITS PRESENT CONDITION * * *

THERE IS A CONFLICT OF AUTHORITY AS TO WHETHER THE VENDOR OR THE PURCHASER UNDER AN UNCONDITIONAL CONTRACT FOR THE SALE OF REAL PROPERTY ASSUMES THE RISK OF A PARTIAL DESTRUCTION OR DETERIORATION OF THE PROPERTY BETWEEN THE EXECUTION OF THE CONTRACT OF PURCHASE AND SALE WHERE THE LOSS IS NOT DUE TO THE FAULT OF THE SELLER AND WHERE THE SELLER IS NOT IN DEFAULT AND IS ABLE TO CONVEY GOOD TITLE. 66 C.J. VENDOR AND PURCHASER, 702, 1052, SECTIONS 262 AND 811; 92 C.J.S. VENDOR AND PURCHASER, SECTION 295; 55 AM. JUR., VENDOR AND PURCHASER, SECTIONS 396 AND 600; AMERICAN DIGEST SYSTEM, VENDOR AND PURCHASER, SECTION 203. THIS CONFLICT IS REFERRED TO IN THE BRIEF PREPARED BY THE CHIEF COUNSEL, RENTAL HOUSING, AND AS STATED IN HIS BRIEF THE MAJORITY RULE IS THAT THE RISK OF LOSS FALLS ON THE PURCHASER. THIS APPEARS TO BE THE RULE IN VIRGINIA WHERE THE VENDOR IS NOT IN DEFAULT AND IS PREPARED TO CONVEY LEGAL TITLE. CHRISTIAN V. CABELL, 22 GRATT, 82, 105.

THE DECISIONS OF THE COURTS FOLLOWING THE MAJORITY RULE HOLD THAT A CONTRACT FOR THE SALE OF LANDS OPERATES AS AN EQUITABLE CONVERSION. THE VENDEE IN CONTEMPLATION OF EQUITY BECOMES THE REAL OWNER AND ASSUMES ALL RISK OF LOSS OR DESTRUCTION OF THE PROPERTY NOT DUE TO NEGLECT OR DEFAULT OF THE VENDOR IN CARRYING OUT THE CONTRACT, UNLESS IT IS APPARENT THEREFROM THAT SUCH WAS NOT THE INTENTION OF THE PARTIES. 27 A.L.R.2D 446. AS THE CHIEF COUNSEL POINTS OUT, THERE IS COURT AUTHORITY, HOWEVER, FOR THE PROPOSITION THAT THE ABOVE MAJORITY RULE IS SUBJECT TO A PROVISION IN THE CONTRACT OF SALE OBLIGATING THE VENDOR TO DELIVER THE PROPERTY IN THE SAME CONDITION IT WAS AT THE TIME OF THE MAKING OF THE CONTRACT, REASONABLE WEAR AND TEAR EXCEPTED. BROWNELL V. BOARD OF EDUCATION, 146 N.E. 630; RHOMBERG V. ZAPF, 208 N.W. 276. HE THEREFORE CONCLUDES THAT IN VIEW OF THE PROVISIONS OF PARAGRAPH 10 AND THE RULE ANNOUNCED THE THE BROWNELL AND THE RHOMBERG CASES THE RISK OF LOSS IN THIS INSTANCE FALLS ON THE SELLER.

BUT, WE CANNOT AGREE THAT PARAGRAPH 10 HAS THE EFFECT OF CASTING LIABILITY FOR THE LOSS ON THE VENDOR, THE GOVERNMENT IN THIS CASE. IN THE BROWNELL AND THE RHOMBERG CASES THERE WERE EXPRESS COVENANTS ON THE PART OF THE VENDORS OBLIGATING THEM TO DELIVER THE PREMISES IN AS GOOD CONDITION AS AT THE DATES OF EXECUTION OF THE CONTRACTS. IN THE PRESENT INSTANCE THE CONTRACT MERELY RECITES THAT THE SELLER MAKES NO REPRESENTATION AS TO THE PHYSICAL CONDITION OF THE PROPERTY AND THAT THE PURCHASER AGREES TO ACCEPT THE SAME IN ITS PRESENT CONDITION. WE THINK THIS PROVISION MEANS NOTHING MORE THAN THAT THE PROPERTY WAS BEING SOLD ON AN "AS IS" BASIS, THAT IT WAS SOLD IN ITS THEN CONDITION, AND WITHOUT ANY WARRANTY AS TO WHAT THAT CONDITION WAS OR WHAT IT WOULD BE AT THE TIME OF THE CONVEYANCE. CONSEQUENTLY, THE SO-CALLED MAJORITY RULE CONTROLS THE RESULT HERE.

WE BELIEVE THAT THERE IS AN ADDITIONAL REASON WHY THE CLAIM HERE IS NOT PROPERLY FOR ALLOWANCE. IT SEEMS CLEAR FROM A READING OF THE ENTIRE CONTRACT THAT THE PARTIES HERE INTENDED THAT THE SELLER'S TITLE, WHICH IT RETAINED UNTIL FINAL CONVEYANCE, WAS INTENDED MERELY AS A "SECURITY TITLE" AND THAT ANY RISK OF LOSS OR ADVANTAGE OF GAIN WAS TO BE BORNE BY THE PURCHASER. WHILE THERE IS NO EXPRESS PROVISION AS TO RISK OF LOSS, THE LANGUAGE OF PARAGRAPH 6 SHOWS CLEARLY THAT THE PARTIES INTENDED THAT THE RIGHTS OF OWNERSHIP SHOULD PASS ON THE LAST DAY OF THE MONTH IN WHICH THE CONTRACT WAS EXECUTED, NAMELY, JUNE 30, 1955 (REFERRED TO AS THE CUT-OFF DATE), OR OVER A MONTH PRIOR TO THE TIME THE BUILDING WAS DAMAGED. WATER RATES, TAXES, HAZARD INSURANCE, OPERATING EXPENSES WERE REQUIRED TO BE ADJUSTED AS OF THE CUT-OFF DATE. AS OF THAT DATE THE PURCHASERS ACQUIRED THE RIGHT TO RECEIVE THE BENEFIT OF ALL INCOME FROM THE PROPERTY, AND THEY BECAME OBLIGATED FOR ALL EXPENSES OF OPERATION OF THE PROPERTY ACCRUING THEREAFTER. ALSO, PARAGRAPH 6 STIPULATES THAT THE PURCHASER SHALL PAY AS OF THE FIRST DAY OF THE NEXT MONTH FOLLOWING THE CLOSING OF THE SALE A SUM CONSISTING OF MORTGAGE INTEREST AT THE SPECIFIED RATE ACCRUING FROM SAID CUT-OFF DATE TO THE FIRST DAY OF THE NEXT MONTH AFTER THE CLOSING OF THE SALE, PLUS THE REQUIRED ESCROW DEPOSITS FOR GROUND RENTS, IF ANY, TAXES, AND HAZARD INSURANCE PREMIUM CHARGES. PARAGRAPH 7 STIPULATES THAT AT CLOSING ALL UNCOLLECTED RENTS WILL BE ASSIGNED TO THE PURCHASER AND ALL RENTS DUE ON OR AFTER THE STATED CUT-OFF DATE WHICH MAY HAVE BEEN COLLECTED BY THE SELLER WILL BE PAID TO THE PURCHASER. ALSO, PARAGRAPHS 8 AND 9 CONTAIN OTHER PROVISIONS SHOWING THAT THE RIGHTS OF OWNERSHIP SHOULD PASS AS OF THE CUT-OFF DATE.

IT HAS BEEN HELD THAT UNDER A CONTRACT FOR THE PURCHASE AND SALE OF REALTY, RISK PASSES TO THE PURCHASER AT THE TIME THE BENEFICIAL INCIDENTS OF OWNERSHIP PASS TO THE PURCHASER. TORLUEMKE V. ABERNATHY, 258 P.2D 282. IN THE CITED CASE THE COURT QUOTED WITH APPROVAL SECTION 939 OF WILLISTON ON CONTRACTS ( REV. USED.), AS FOLLOWS:

THE INTENTION OF THE PARTIES IS THE FACTOR IN ANY PROPER DECISION. PARTIES DO NOT FREQUENTLY MAKE EXPRESS PROVISIONS AS TO RISK, BUT THEY DO INDICATE WHETHER THEY INTEND A PRESENT TRANSFER OF THE RIGHTS OF OWNERSHIP OR A FUTURE TRANSFER, AND THERE SHOULD BE NO DOUBT THAT THEY EXPECT ALL THE INCIDENTS OF OWNERSHIP TO PASS FROM THE SELLER TO THE BUYER AT THAT TIME. THAT TIME WILL FREQUENTLY NOT BE WHEN THE LEGAL TITLE IS TRANSFERRED. IF, AS FREQUENTLY HAPPENS, A PURCHASER IS GIVEN IMMEDIATE POSSESSION UNDER HIS CONTRACT, WITH THE RIGHT TO USE THE PROPERTY AS HIS OWN TO THE SAME EXTENT AS IS CUSTOMARY WITH A MORTGAGOR, THE TITLE IS RETAINED MERELY AS SECURITY FOR PAYMENT OF THE PRICE. IT IS A SHORT WAY AND IN MANY STATES A COMMON WAY OF ACCOMPLISHING THE SAME END THAT WOULD BE ACHIEVED BY CONVEYING TO THE PURCHASER AND TAKING BACK A MORTGAGE. WHEN BY THE CONTRACT THE BENEFICIAL INCIDENTS OF OWNERSHIP ARE TO PASS IS THE TIME WHICH THE PARTIES MUST REGARD AS THE MOMENT OF TRANSFER. THIS IS THE TIME WHEN THE PURCHASER IS HELD TO BECOME THE ,OWNER," UNDER ALIENATION CLAUSES IN INSURANCE POLICIES, AND NO LITTLE AUTHORITY SUPPORTS THE CONCLUSION THAT THEN, AND NOT BEFORE, THE RISK PASSES TO THE VENDEE.

APPLYING THE ABOVE RULE TO THE INSTANT CASE, IT MUST BE CONCLUDED THAT THE VENDEE BECAME THE ,OWNER" OF THE PROPERTY AS OF THE CUT-OFF DATE ( JUNE 30, 1955). AT THAT TIME THE PROPERTY WAS IN THE "PRESENT CONDITION" CONTEMPLATED BY PARAGRAPH 10 OF THE CONTRACT AND, HENCE, THE COST OF REPAIRING THE DAMAGE CAUSED BY CIRCUMSTANCES WHICH AROSE THEREAFTER MUST BE BORNE BY THE PURCHASER.

ACCORDINGLY, CERTIFICATION OF THE VOUCHER, RETURNED HEREWITH, IS NOT AUTHORIZED.