## Facts

- Albert D. Dixon agreed in writing to buy two commercial parcels in downtown San Diego from the Salvation Army: the “8th & K property” (office building and warehouse) and the “8th & J property” (brick warehouse).
- After discovery of structural deficiencies in the 8th & J property, escrow instructions were amended to reduce the total purchase price from $1.1 million to $900,000.
- Before escrow closed, and before Dixon received legal title or possession, a fire destroyed one building on the 8th & K property.
- The Salvation Army collected $240,000 in fire insurance proceeds, but the building was significantly underinsured.
- The contract required delivery in the “same general condition” (minus normal wear and tear) as when Dixon inspected the property; after the fire, the Salvation Army could not meet that condition.
- The parties could not agree on a revised “as is” purchase price, prompting Dixon to sue for declaratory relief.
- The trial court granted summary judgment for Dixon and declared the purchase price should be abated to reflect the proportionate value of the destroyed improvements relative to the total value of the property sold, leaving the amount for agreement or further proceedings.

## Issues

1. Under California Civil Code section 1662, who bears the risk of loss when improvements are destroyed by fire without fault before transfer of title or possession and while the buyer is not in possession?
2. Does Civil Code section 1662 limit the buyer’s remedies to rescission and recovery of payments, or may the buyer elect specific performance with an abatement of the purchase price?
3. May the seller enforce the contract at the full, unadjusted purchase price after such preclosing destruction?

## Decision

- The Court of Appeal affirmed the declaratory judgment entered on summary judgment.
- Civil Code section 1662 placed the risk of loss on the seller because neither title nor possession had passed and the destruction was without fault.
- The buyer was not confined to rescission; the buyer could elect specific performance with a proportionate abatement to reflect the loss in value from the fire.
- The seller could not compel performance at the full contract price in these circumstances.
- The court approved a proportional abatement framework, with the specific amount to be determined later.

## Legal Principles

- Under California Civil Code section 1662 (Uniform Vendor and Purchaser Risk Act), if a material part of the property is destroyed without the purchaser’s fault before transfer of legal title or possession and the purchaser is not in possession, the purchaser is not required to perform and may recover consideration paid.
- Section 1662 reallocates preclosing risk of loss to the seller in the covered circumstances, barring the seller from insisting on performance at the original price after material destruction.
- The statute does not make rescission the purchaser’s exclusive remedy; absent express legislative exclusion, traditional equitable remedies remain available.
- A purchaser may elect specific performance with an equitable abatement of the purchase price when the seller can convey the remaining property but not in the condition promised due to a loss occurring while the seller bore the risk.
- An abatement may be set by reference to the proportionate diminution in value attributable to the destroyed improvements relative to the total value of the contracted-for property.

## Conclusion

Civil Code section 1662 placed the preclosing fire loss on the seller and prevented enforcement at the original price, while allowing the buyer to choose either rescission or specific performance with a proportionate reduction in price reflecting the fire-related loss in value.


Dixon v. Salvation Army, 142 Cal. App. 3d 463 (Ct. App. 1983)