166 So. 3d 601
Miss. Ct. App.2015Background
- Bilbos entered into a lease-purchase agreement (LPA) with Fairchilds granting an option to buy by July 1, 2017.
- LPA required a $15,000 down payment and monthly payments totaling $489.88 plus escrow; insurance of at least $80,000 was required with Fairchilds as additional insureds.
- Two hazard insurance policies existed: State Farm (Bilbos’ coverage) for $89,900 and Alfa (Fairchilds’) paid via escrow; both policies were active at the time of the tornado.
- February 2013 tornado destroyed improvements; State Farm paid full coverage; Alfa would pay the excess up to its limit; Bilbos exercised Option A to purchase.
- Fairchilds refused to sell, claiming Bilbos’ reliance on insurance proceeds; chancellor ordered specific performance and allocation of insurance proceeds.
- Fairchilds appeal, arguing default and allocation issues; court affirmed, holding Bilbos could obtain specific performance and share insurance proceeds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bilbos validly exercised the option | Fairchilds argue option not properly exercised. | Bilbos timely exercised under a definite, described property with consideration. | Yes; option properly exercised and specific performance warranted. |
| Insurable interest of Bilbos | Bilbos lacked insurable interest once option exercised. | Lessee and owner have insurable interest; Bilbos had interest via LPA. | Bilbos had an insurable interest. |
| Default under the LPA | Bilbos defaulted by stopping payments. | Fairchilds’ failure to perform after Bilbos exercised option constitutes breach by promisor. | Bilbos were not in default; promisor breached. |
| Sharing of insurance proceeds | Proceedings should favor Bilbos under LPA and equity. | Proceeds should be allocated by interests as insured; may favor Fairchilds. | Chancellor properly allocated proceeds; both parties have interests. |
| Use of insurance proceeds to rebuild vs. complete transfer | Owner seeking full use to rebuild; Bilbos’ option unaffected. | Full use would deprive Bilbos of bargained-for option value. | No manifest error; proceeds allocation consistent with bargain and option. |
Key Cases Cited
- Prestenbach v. Collins, 159 So. 3d 531 (Miss. 2014) (option to sale converts to sale when exercised)
- Creely, 910 So. 2d 512 (Miss. 2005) (contract interpretation standard)
- Busching v. Griffin, 542 So. 2d 860 (Miss. 1989) (tender of purchase price not required to exercise option)
- Clinton Serv. Co. v. Thornton, 233 Miss. 1, 100 So. 2d 863 (Miss. 1958) (option holder entitled to specific performance upon exercise)
- Franconia Ass’n v. United States, 536 U.S. 129 (U.S. 2002) (principles for determining sharing of insurance proceeds)
- Vaughn v. Monticello Insurance Co., 838 So. 2d 983 (Miss. Ct. App. 2001) (factors for sharing insurance proceeds where not all insureds are named)
- Necaise v. U.S.A.A. Cas. Co., 644 So. 2d 253 (Miss. 1992) (insurable interest standard)
- Morris v. Macione, 546 So. 2d 969 (Miss. 1989) (promisor-caused-failure doctrine)
- Leach v. Tingle, 586 So. 2d 799 (Miss. 1991) (requirements for specific performance)