Chapter 17 - § 17.5 • TITLE OF VENDOR AND PURCHASER
| Jurisdiction | Colorado |
§ 17.5.1—Equitable Conversion
In the absence of statutory authority, the rights, powers, duties, and liabilities arising out of a contract for the sale of land are frequently derived by reference to the doctrine of equitable conversion.130
The doctrine of equitable conversion is based upon the fundamental equity principle that equity regards as done that which ought to be done. The doctrine of equitable conversion was originally applied in early English jurisprudence in controversies between the personal representatives and the heirs or devisees of a deceased person as to whether certain property of the decedent should be treated as realty or personalty in its devolution. Where the involved instrument sufficiently expressed an intention by a testator or grantor that his real estate be turned into personal property or his personal property be turned into real estate, courts of equity, without reference to the then physical status of the property, treated the intention of the testator or grantor as controlling. As the doctrine was primarily conceived and carried into effect by the earlier decisions in the United States and in England, it was generally held that the conversion took place in wills from the date of the death of the testator, and in other instruments inter vivos as of the date of their execution. In so far as these cases dealt with contracts for the sale of land, the contracts involved, with few exceptions, were unconditional agreements for the purchase and sale as distinguished from option agreements giving the right to purchase without imposing any legal obligations to do so. Where the doctrine of equitable conversion was applied in unconditional sales contracts, the conversion generally has been held to be effective as of the date of the contract.131
The execution of a binding contract to purchase land effects an equitable conversion of the vendor's interest in the land into personalty132 and the purchaser's contractual interest in the land into realty.133 The doctrine of equitable conversion is applicable only when there is a specifically enforceable contract134 because the changes in rights and liabilities that occur upon the making of the contract result from the equitable right to specific performance.135 (The right to specific performance may arise upon part performance of a contract not complying with the Statute of Frauds.136 ) Accordingly, upon the execution of such a contract, the purchaser is regarded as the equitable owner of the land137 and the vendor is regarded as a secured creditor.138 (This rule does not apply where a deed is placed in escrow.139 ) Each party has an insurable interest in the property.140 When payment is fully made, the purchaser has the entire equitable title and the vendor holds the naked legal title in trust for the purchaser.141 In an option contract, the equitable conversion occurs when the option is exercised, not when the contract becomes effective.142
Upon equitable conversion, the risk of loss remains with the party in possession.143 The purchaser under an executory contract for the conveyance of property becomes the equitable owner of land sufficient to enable him or her to maintain a quiet title action.144 The equitable interest of the purchaser, including the right to specific performance, may be assigned.145
The doctrine of equitable conversion has been relied upon to ascertain the powers of the creditors of each party to reach the land in payment of their claims;146 to characterize the purchaser in possession as the unconditional and sole owner under a policy of insurance;147 to provide jurisdiction to a court over a non-resident purchaser based upon the purchaser's ownership of real property in Colorado;148 and...
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