Also known as: economic risks of loss · risk of loss
Written by attorneys · grounded in primary & secondary sources — see below
2 senses
A doctrine allocating responsibility for damage or destruction to land or improvements between buyer and seller during the executory period of a land sale contract. Under the majority rule of equitable conversion, the risk passes to the buyer upon formation of a binding contract, requiring the buyer to pay the full purchase price even if the property is later destroyed.
A doctrine allocating responsibility for damage or destruction to land or improvements between buyer and seller during the executory period of a land sale contract. Under the majority rule of equitable conversion, the risk passes to the buyer upon formation of a binding contract, requiring the buyer to pay the full purchase price even if the property is later destroyed.
Select any source to read its text and confirm it supports the definition.
The ultimate personal liability a partner bears for a partnership recourse debt, used to allocate basis under section 752. A partner bears economic risk of loss to the extent that partner would be required to make a payment to any person or contribute to the partnership if the partnership constructively liquidated with all assets worthless and all liabilities due.
Select any source to read its text and confirm it supports the definition.
The ultimate personal liability a partner bears for a partnership recourse debt, used to allocate basis under section 752. A partner bears economic risk of loss to the extent that partner would be required to make a payment to any person or contribute to the partnership if the partnership constructively liquidated with all assets worthless and all liabilities due.
Each sense below has its own examples, sources, and questions.
On June 1, Grove Fiber contracted to buy a hilltop parcel with a cell tower from South Satellite for two million dollars, closing set for July 15. On July 8 a storm toppled the tower. Grove Fiber refused to close at the original price. Because the binding contract shifted the risk of loss to the buyer at formation, Grove Fiber must still pay the full price despite the destruction.
Eric Espinoza signed a contract on March 15 to purchase a warehouse from Edgewater Capital, with closing scheduled for April 30. On April 10 a fire destroyed the building. Under the majority equitable conversion rule the risk had already passed to Eric at contract formation, so he remains obligated to pay the full purchase price at closing.
Erika Echevarria agreed on May 20 to buy a beach house from Equinox Energy, closing set for June 25. A hurricane on June 10 destroyed the house. Because the majority rule places risk of loss on the buyer at contract formation, Erika cannot rescind or demand a price reduction and must pay the contract price.
Ezra Eastman contracted on August 5 to purchase an apartment building from Evergreen Bank, closing on September 10. A flood on August 28 damaged the building. The seller holds legal title only as trustee for Ezra after contract formation, so Ezra bears the risk of loss and must complete the purchase at the original price.
Risk of loss passes to the buyer at formation of a binding contract for the sale of land. The buyer must still pay the full price even if the property is destroyed before closing.
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Yes. Under equitable conversion the seller holds legal title in trust for the buyer, while the buyer holds an equitable interest that carries the risk of loss and the right to rents and other benefits during the executory period.
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The default majority rule still applies. Risk passes to the buyer at contract formation, and the buyer cannot rescind or reduce the price merely because improvements are later destroyed.
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A partner receives basis for recourse liabilities only to the extent the partner bears the economic risk of loss for those liabilities. Limited partners generally bear no economic risk of loss unless they agree to contribute additional capital.
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