Anderson v. Yaworski , 120 Conn. 390 ( 1935 )

On November 13th, 1933, the plaintiff and the defendant entered into a written agreement, by the terms of which the defendant agreed to sell and the plaintiff to buy for $2745 a certain parcel of land with the buildings thereon. The agreement acknowledged the receipt of $100 upon the purchase price and provided that the plaintiff would, on or before April 1st, 1934, pay the defendant the balance of the purchase price, in part in cash and the rest by the assumption of a mortgage already upon the premises and by giving to the defendant a second mortgage for the remaining sum due; and it also provided that if the plaintiff failed to make the payments stated he should forfeit all claims to the premises and all money paid. Upon the execution of the contract the defendant paid a commission of $140 to a real-estate agent for his services in negotiating the sale. The plaintiff intended to occupy the premises as his home. On January 26th, 1934, the dwelling-house on the premises was totally destroyed by accidental fire without the fault of either party. Shortly before April 1st the defendant informed the plaintiff that she would be ready and willing to carry out the contract on March 31st; and she also offered to assign to him all rights under an insurance policy which had been issued to her upon the buildings on the property. This offer the plaintiff refused and, declining to make further payments, he demanded the return of the $100 he had paid. He brought this action to recover that sum, and the defendant filed a counterclaim seeking damages for his failure to perform the contract. The trial court concluded that, as there had been a substantial failure of consideration by the destruction of the dwelling-house, the plaintiff was relieved of his obligation to fulfil the provisions of the agreement and was entitled to recover the amount he had paid. Judgment entered for the plaintiff upon the complaint and counterclaim and the defendant has appealed.

It is undoubtedly true that the majority of courts have adopted the rule that, where a contract is made to convey real estate upon which a building stands, the burden of the loss by the burning of the building without fault of either party falls upon the vendee, no matter how material a part of the substance of the contract it was or whether or not the time for the performance had arrived when it was destroyed. Notes, 22 A. L. R. 575; 41 A. L. R. 1272; 46 A. L. R. 1126. This rule, differing from that applied to contracts for the sale of personal property, is based, as far as legal principles are concerned, upon the nature of the estate of the vendee, which equity regards as arising out of the contract. The legal foundation for the rule does not bear analysis. See Langdell, a Brief Survey of Equity Jurisdiction (2d Ed.) pp. 58 et seq. (1 Harvard Law Review, pp. 373 et seq.); 2 Williston, Contracts, §§ 928 et seq. (9 Harvard Law Review, p. 106). While for many purposes the vendee in equity is recognized as the real owner of the property, it cannot be said with accuracy that the entire beneficial interest has vested in him; for instance, pending the time fixed for the performance of the contract the vendee has not one of the principal incidents of ownership, the right to the enjoyment and profits of the property. 66 C. J. p. 1034, §§ 784 et seq. For this reason, if for no other, the vendor cannot properly be said to be a trustee of the land for the vendee; Brett, L. J., Rayner v. Preston, L. R. 18 Ch. Div. 1, 10; Pound, The Progress of the Law, 33 Harvard Law Review, p. 830; rather their relationship is like that between a mortgagor in possession and the mortgagee, which is more aptly described as one in the nature of a trust than as one of a trust in fact, although, as in similar situations, equity may for certain purposes undoubtedly treat the vendor as a quasi-trustee.Andrews v. New Britain National Bank, 113 Conn. 467,472, 155 A. 838.

The maxim that equity regards that as done which ought to be done and its outgrowth, the equitable doctrine of conversion, cannot be broadly applied to such a situation as the one before us. The basis of the maxim is the existence of a duty; "unless the equitableought exist, there is no room for the operation of the maxim;" 3 Pomeroy, Equity Jurisprudence (4th Ed.) § 1160; agreements "``are to be considered as done at the time when, according to the tenor thereof, they ought to have been performed;'" Hall v. Hall,50 Conn. 104, 111; Manice v. Manice, 43 N.Y. 303, 372; and equity can hardly regard that as presently done which the parties to a contract have agreed shall be done only in the future. The basis of the doctrine of conversion whereby for certain purposes real estate is considered in equity as personal and personal estate as real, is the intent of the party creating a right in the property, or in the case of a contract, the intent of the parties to it; "this, like all other questions of intention, must ultimately depend upon the provisions of the particular instrument." Pomeroy, Op. Cit., § 1162. "The doctrine of equitable conversion is an equitable one, adopted for the purpose of carrying into effect, in spite of legal obstacles, the intent of a testator or settlor. It is not a fixed rule of law, but proceeds upon equitable principles which take into account the result which its application will accomplish. Its application is, therefore, governed by somewhat different considerations, according to the connection in which it is invoked." Emery v. Cooley,83 Conn. 235, 238, 76 A. 529. In determining the devolution of estates, equity may regard real property as converted into personal or personal into real even though by the terms of a will the actual conversion is postponed to some future time, and may hold that a contract to sell real estate works a conversion in so far as the rights of those interested in the estate of the vendor are concerned, where he dies before the time of performance has arrived. Emery v. Cooley, supra; Bowne v. Ide,109 Conn. 307, 315, 147 A. 4. But in doing this equity is giving that effect to the transaction which will most nearly work out the rights of those interested in the estate in accordance with the aspect of the property which it may fairly be assumed it had taken in the mind of the deceased. But, as between the parties to the contract, to regard the land as converted into personality before the time for performance of the contract has come is to do violence to their expressed intent. Under such a contract, the vendor's right to money in lieu of the land and the vendee's right to the land in lieu of the money can arise only when the time agreed upon for performance has arrived.

Nor do the distinctions between the effect of the contract for the sale of real estate and those for the sale of personal property, often adverted to in the opinions, afford sufficient basis for the application of a different rule as to risk of loss. While it is true that in most jurisdictions of this country, by the recording of a contract to sell real estate notice of the rights of the vendee will be imputed to all the world and hence he is protected to a greater extent than is the vendee of personal property, that is only because of the effect of the recording statutes; and a vendee of personal property enjoys a like protection where, as in the case of conditional sales, the statutes provide for the recording of the contract. Liquid CarbonicCo. v. Black, 102 Conn. 390, 394, 128 A. 514;Tire Shop v. Peat, 115 Conn. 187, 189, 161 A. 96. While contracts for the sale of real estate may usually be specifically enforced, but contracts for the sale of personal property can only be so enforced in exceptional circumstances, this distinction is due to the fact that in the case of the latter the disappointed purchaser may ordinarily repair his loss by the purchase of other like property, while each parcel of land has usually its own peculiar characteristics and one parcel cannot often afford a complete and adequate substitute for another in the mind of the purchaser. "Courts of equity decree the specific performance of contracts, not upon any distinction between realty and personalty, but because damages at law may not, in a particular case, afford a complete remedy. Thus a court of equity decrees performance of a contract for land, not because of the real nature of the land, but because damages at law, which must be calculated upon the general money-value of land, may not be a complete remedy to the purchaser, to whom the land may have a peculiar and special value." Adderley v.Dixon, 1 Sim. St. 607, quoted 5 Pomeroy, Op. Cit., p. 4869. Nor are we impressed with the practical reasons sometimes advanced in support of the majority rule, that as the vendee would have the benefit, upon the performance of the contract, of any access of value accruing subsequent to its making, it is only just that he should bear any risk of loss due to the destruction of the building upon the property during this time. Whether the one could fairly be set off against the other involves considerations which cannot be definitely ascertained and our own conviction is that to do so does not produce a just result. Moreover, the same considerations are present in sales of personal property, but they have never been considered to justify the abrogation of the rule applied to such sales.

That rule has been stated by us as follows: "Where, from the nature of the contract and the surrounding circumstances, the parties from the beginning must have known that it could not be fulfilled unless, when the time for fulfillment arrived, some particular thing or condition of things continued to exist, so that they must be deemed, when entering into the contract, to have contemplated such continuing existence as the foundation of what was to be done; in the absence of any express or implied warranty that such thing or condition of things shall exist, the contract is to be considered as subject to an implied condition that the parties shall be excused, in case, before breach, performance becomes impossible or the purpose of the contract frustrated from such thing or condition ceasing to exist without default of either of the parties."Straus v. Kazemekas, 100 Conn. 581, 591, 124 A. 234; see Fischer v. Kennedy, 106 Conn. 484, 490,138 A. 503. We can find no sufficient reason for not applying the same rule to contracts for the sale of real estate. In the latter as much as in those for the sale of personal property, the intention of the parties is that, when the time for performance is reached, the property bargained for shall pass; that intention is just as much frustrated in the one case as in the other by the destruction of the essential value of the property before the day of performance comes; and there is the same reason to imply as a condition of an obligation to perform the contract, that value should continue to exist. Thompson v. Gould, 37 Mass. (20 Pick.) 134, 139; Gould v. Murch, 70 Me. 288.

In Hough v. City Fire Ins. Co., 29 Conn. 10, we had before us an action upon a fire insurance policy issued to one who had contracted to buy the property insured but had not received a deed of it. The application for the policy requested that it be issued to the insured upon "his frame dwelling-house" and "his barn" and one condition of the policy was that if the interest of the insured in the property was "not absolute" this must be so represented or the policy would be void. The buildings having been destroyed by fire, the insurer contended that the representation of the insured that they were "his" buildings was untrue and that the condition in the policy had not been met. We held that the plaintiff had a vested interest in the property, dependent upon no contingency, and a right to it which he might enforce at his will and of which he could not be deprived without his consent, that he did not misrepresent when he referred to the buildings upon it as "his" and that his interest was not other than "absolute" as that word was used in the condition of the policy. It is true that we did in the opinion state that the risk of loss of property was upon the insured, and other courts, in reaching like conclusions, have sometimes given this as a reason for their decisions. See Petello v. Teutonia Fire Ins. Co., 89 Conn. 175,93 A. 137; note, 60 A. L. R. 18. That reason is by no means a necessary foundation for such a rule, but it finds adequate basis in the nature of the equitable estate which the vendee acquires under a contract for the sale of land. McCollough v. Home Ins. Co.,155 Cal. 659, 102 P. 814; Johannes v. Standard FireOffice, 70 Wis. 196, 201, 35 N.W. 298; note, 60 A. L. R. 18. Now that we are directly confronted with the question whether, under such a contract the risk of loss is upon the vendee, we are not able to accept as authoritative the statement in the Hough case that it is, at least where possession has not passed, but hold that risk of loss is upon the vendor.

It is true that in the ordinary contract for the sale of real estate, though a building upon it is destroyed by fire, the land remains and the inability of the vendor to perform does not go to the entire subject-matter of the contract; nor should the destruction of a building upon the land or a part of the buildings upon it in all cases discharge the vendee from his obligation to perform. Recognizing this, the Supreme Judicial Court of Massachusetts has stated that the vendee is not released "if the change in the value of the estate is not so great, or if it appears that the buildings did not constitute so material a part of the estate to be conveyed as to result in an annulling of the contract." Hawkes v. Kehoe, 193 Mass. 419, 425,79 N.E. 766. In dealing with the discharge of contracts for the sale of personal property, the American Law Institute Restatement states that where a "material deterioration" of a specific thing which in the contemplation of both parties is necessary for the performance of a promise in a bargain occurs without the fault of the promisee, the duty to perform the contract, unless a contrary intent appears, is discharged, except that the promisee has a qualified right to demand whatever performance remains possible; Amer. Law Institute Restatement, Contracts, § 460; and in Comment (e) to this section it states that the same rule applies where the subject-matter of the contract is partially destroyed. But in § 281 of the Restatement, though treating of a "prospective inability" to perform due to the destruction of the subject-matter of the bargain, the Restatement gives as a rule applicable to both present and future inability to perform that the promiser is discharged where "substantial performance" has become impossible; and in Comment (b) to this section it states: "Where the means of performance are impaired, but not destroyed, the determination of the question depends upon the degree of impairment."

The phrase "substantial performance" is one made familiar to us in those cases where a contractor is permitted to recover though he has failed, not wilfully, in part to perform his obligation but has substantially performed it; Kelley v. Hance, 108 Conn. 186, 187,142 A. 683; and we have recognized that whether a contract has been substantially performed is ordinarily a question of fact. Chinigo v. Ehrenberg, 112 Conn. 381,384, 152 A. 305. The test of substantial performance is more in accord with our legal conceptions and furnishes a sufficient test for the application of the rule we are considering. Whether there has been such performance must depend upon the circumstances of the particular case; the intention of the parties; the use to which the property is capable of being put or to which the vendor knows or should know that the vendee intends to put it, and the extent to which such use will be prevented or interfered with; the relative values of the land and the buildings, if they are wholly destroyed or, if only partially destroyed, of the value of what remains to the value of the whole; and no doubt other considerations. Our conclusion is that, if by reason of the destruction or injury to the buildings upon real estate agreed to be conveyed between the time of the making of the contract and the time fixed for performance, it is no longer possible for the vendor substantially to perform the contract, the vendee may treat it as discharged.

The finding of the trial court that the burning of the dwelling-house upon the property had brought about a substantial failure of consideration is, for all practicable purposes, the equivalent of a finding that after the fire the defendant was no longer able substantially to perform the contract. The plaintiff was therefore entitled to treat it as discharged. The contract being discharged, the provision in it that if the plaintiff failed to make the further payments agreed upon he should forfeit the money paid in pursuance of it falls with the rest of it. He has paid a part of the purchase price but has received no benefit under the contract. He is therefore entitled to recover the sums so paid from the defendant. Thompson v. Gould, 37 Mass. (20 Pick.) 134, 142; Wilson v. Clark,60 N. H. 352; 3 Williston, Contracts, § 1974. The trial court was correct in giving judgment for the plaintiff upon both the complaint and the counterclaim.

There is no error.

In this opinion HAINES and AVERY, Js., concurred.