The Colorado Court of Appeals issued its opinion in Loveland Essential Group, LLC v. Grommon Farms, Inc. on September 16, 2010.
Real Property—Purchase Agreements—Warranty Deed—Lease—Encumbrance—Damages—Diminution in Value—Indemnity Clause—Attorney Fees—Fraud—Breach of Contract.
In this real property contract case, Loveland Essential Group, LLC (buyer) appealed and Grommon Farms, Inc., Gary Grommon, and Connie Grommon (collectively, seller) cross-appealed various aspects of the district court’s judgment. The judgment was affirmed in part and reversed in part.
The district court found that seller had breached a real estate purchase agreement (RPA), an asset purchase agreement (APA), and a warranty deed by conveying the property subject to an encumbrance (collectively, tenant), but awarded buyer no damages. The court ruled in seller’s favor on buyer’s fraud claim, which also pertained to the existence of the lease.
Buyer contended that the district court erred by concluding that it was not entitled to damages from seller for breach of the RPA, APA, and warranty deed. Buyer was entitled to claim diminution in the property’s fair market value caused by the existence of the lease. The district court found that damages were limited to the fair rental value of the property to the expiration of the lease term, which tenant pays pursuant to the lease. Because the district court did not make any findings concerning buyer’s request for such loss in value, the case was remanded to the district court for such findings.
Buyer also contended that the indemnity clauses in the RPA, APA, and warranty deed entitle it to reasonable costs and attorney fees it incurred in suing tenant to determine the validity of the lease; therefore, the district court erred in denying its request for such damages. The Court of Appeals determined that buyer’s unsuccessful suit against tenant was not necessary either to maintain or defend buyer’s title; therefore, the court did not err in denying its request for attorney fees.
Buyer further contended that the district court erred in finding that seller did not commit fraud. The court’s finding that buyer had full knowledge of the written lease and its terms before the closing is amply supported by the record; therefore, the district court did not clearly err in finding that buyer could not have justifiably relied on seller’s alleged misrepresentation. As a result, buyer’s fraud claim failed.
Seller contended that the district court erred in concluding that it breached the RPA, APA, and warranty deed by conveying the real property subject to the lease. Because the lease constituted an encumbrance on the property, which was not listed as an exception in the warranty, seller breached the RPA and the warranty deed. On the other hand, the lease, though an encumbrance on the real property, was not an encumbrance on the acquired assets, which were the subject of the APA. Therefore, the APA was not breached. It also follows that seller’s challenge to the district court’s ruling on buyer’s indemnification claim necessarily failed. The judgment was affirmed in part and reversed in part.