Brush Grocery Kart, Inc. v. Sure Fine Market, Inc.
47 P.3d 680 (2002)
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Rule of Law:
In a contract for the sale of real property, the risk of casualty loss remains with the vendor (seller) unless the vendee (buyer) has taken possession of the property prior to the transfer of title.
Facts:
- In October 1992, Brush Grocery Kart, Inc. (Brush) entered into a five-year lease with Sure Fine Market, Inc. (Sure Fine) for a commercial property.
- The lease contained a provision giving Brush an option to purchase the property during the final six months of the lease term.
- The purchase price was to be determined by averaging appraisals from experts designated by each party.
- Shortly before the lease expired, Brush exercised its option to purchase, but the parties could not agree on a final price.
- When the lease expired, Brush vacated the property, returned all keys to Sure Fine, and discontinued its casualty insurance on the premises.
- After Brush had vacated the property but before the price dispute was resolved, a hailstorm caused substantial damage to the building, stipulated at $60,000.
- At the time of the storm, neither Brush nor Sure Fine had casualty insurance covering the property.
Procedural Posture:
- Brush Grocery Kart, Inc. filed suit against Sure Fine Market, Inc. in district court, seeking the appointment of a special master to determine the property's purchase price.
- Sure Fine counterclaimed, alleging Brush had negotiated in bad faith.
- The district court appointed a special master, accepted his appraised value, and ruled that under the doctrine of equitable conversion, Brush bore the risk of the hail damage.
- The district court ordered Brush to pay the full purchase price without an abatement for the damage.
- Brush, as appellant, appealed the allocation of loss to the Colorado Court of Appeals.
- The Court of Appeals affirmed the district court's judgment, holding that equitable conversion placed the risk of loss on the buyer from the moment the option was exercised, regardless of possession.
- Brush petitioned for, and was granted, a writ of certiorari from the Supreme Court of Colorado to review the Court of Appeals' decision.
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Issue:
Does a buyer of real property who is not in possession bear the risk of casualty loss that occurs after exercising an option to purchase but before the transfer of legal title?
Opinions:
Majority - Justice Coats
No. A buyer of real property who is not in possession does not bear the risk of casualty loss. The court held that the doctrine of equitable conversion does not automatically shift the risk of loss to the vendee upon contract formation; rather, the right of possession is the critical factor in determining which party bears the risk. The court reasoned that as a matter of logic and equity, the obligation to maintain property follows the right to possess and control it. The court distinguished its prior precedent in Wiley v. Lininger, clarifying that the rule announced there only shifted the risk of loss to a vendee who was 'in possession.' Forcing a vendee who lacks possession or control to bear the risk of loss would 'stand the equitable conversion theory on its head.' Because Brush had vacated the premises and was not in possession at the time of the hailstorm, the risk of loss remained with the vendor, Sure Fine. Therefore, Brush was entitled to specific performance of the contract with a price abatement equal to the amount of the casualty loss.
Analysis:
This decision significantly clarifies Colorado's common law on risk allocation in real estate transactions, rejecting a rigid application of the doctrine of equitable conversion. By adopting the 'possession' rule, the court aligns Colorado with a modern and growing number of jurisdictions that link the risk of loss to the practical realities of control and benefit over the property. This precedent establishes a clear, predictable standard for future cases, emphasizing that the party with the right to possess the property is responsible for protecting it. The ruling provides greater protection for buyers who have not yet taken possession and encourages sellers to maintain insurance on their property until closing.
