## Facts

- A vendor and two purchasers executed a written contract for the sale of a specific lot in Roanoke, Virginia.
- Both parties contemplated and mutually understood that the purchasers were buying the lot to erect a storage plant for ice cream and frozen fruits.
- At contracting, the lot’s zoning permitted the contemplated business use.
- Before the closing and delivery of the deed, the city enacted a new zoning ordinance rezoning the property to residential, making the contemplated business use unlawful.
- The rezoning substantially depreciated the lot’s value and defeated the transaction’s agreed purpose.
- The parties stipulated there was no fraud, misrepresentation, unfair dealing, or other inequitable conduct by either side.
- The purchasers refused to complete the purchase after the rezoning.
- The vendor filed a bill in chancery seeking specific performance, arguing the doctrine of equitable conversion placed the risk of the zoning change on the purchasers.

## Issues

1. Whether equity should order specific performance of a land-sale contract when, before conveyance and through no fault of either party, an intervening rezoning defeats the mutually contemplated purpose and substantially reduces the property’s value.
2. Whether equitable conversion should apply to treat the purchasers as equitable owners from the contract date and allocate the loss from the rezoning to them.

## Decision

- The Supreme Court of Appeals of Virginia affirmed the decree denying specific performance.
- The court refused to apply equitable conversion because an intervening event made enforcement contrary to the parties’ intent and inequitable in effect.
- The court held that compelling the purchasers to accept a residentially restricted lot would be harsh and oppressive given the known business purpose of the purchase and the substantial depreciation.

## Legal Principles

- Specific performance of a real estate contract is discretionary and may be denied when enforcement would be harsh, oppressive, or inconsistent with the parties’ mutual understanding at contracting.
- Equitable conversion is not automatic; it is applied only when consistent with the parties’ intent and when it will not produce inequitable results.
- Equity treats as done what ought to be done only when nothing has intervened that ought to prevent performance; an intervening governmental act (such as rezoning) that defeats a mutually contemplated use can justify denying specific performance.
- When a change in law precludes the use for which the vendor knows the land is being purchased, equity may refuse to force the purchaser to accept a fundamentally different bargain.

## Conclusion

Because an intervening rezoning made the property unusable for the known and mutually intended purpose and substantially diminished its value, the court denied specific performance and declined to apply equitable conversion to shift that loss to the purchasers.


Clay v. Landreth, 45 S.E.2d 875 (Va. 1948)