Editor’s note: This is Part 7 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.
Taylor Morrison of Colorado, Inc. v. Bemas Construction
Colorado Court Appeals, January 30, 2013
2014 COA 10
Construction defects statute; willful and wanton breach of contract required to overcome liability limitation provisions in contract.
Taylor Morrison of Colorado, Inc. was the developer of a residential subdivision known as Homestead Hills. Pursuant to written contracts with Taylor, Terracon Consultants, Inc. performed geotechnical engineering and construction material testing services at the construction site. Bemas Construction performed site grading.
After many of the homes were constructed, Taylor began receiving complaints about cracks in the drywall of homes. Taylor remedied the defective conditions, and then sued Terracon and Bemas for breach of contract and negligence and other claims.
Taylor also moved for determination as to whether the Homeowner Protection Act of 2007 (HPA) invalidated the limitation of liability clauses in the contracts with Terracon. The trial court denied the motion on the ground that the HPA applies to residential property owners but not to commercial entities.
Terracon moved for leave to deposit into the court’s registry $550,000, representing the maximum amount that Taylor could recover from Terracon under the contractual limitation of liability clauses and the court order. It also requested that upon acceptance of such deposit, the court should declare Taylor’s claims against Terracon moot and dismiss them with prejudice. The trial court ruled in favor of Terracon. The money was deposited and the claims were dismissed with prejudice.
Taylor then went to trial against Bemas. The jury returned a verdict in Bemas’ favor on all of Taylor’s claims. Taylor appeals.
Taylor argued that it was error to rule that the HPA did not invalidate the limitation of liability clauses in Taylor’s contracts with Terracon. The court of appeals panel affirms the trial court’s judgment, but for different reasons. The court holds that regardless of whether the HPA applies to commercial entities, retroactive application of the HPA to these facts would be unconstitutionally retrospective. The Court concludes, however, that further proceedings are necessary to determine whether Taylor should have been permitted to introduce evidence of Terracon’s willful and wanton conduct to attempt to overcome Terracon’s assertion of the limitation of liability clauses.
The judgment is affirmed and the case is remanded to the trial court to determine whether Taylor should have been permitted to introduce evidence of Terracon’s willful and wanton conduct for the sole purpose of attempting to overcome Terracon’s assertion of the limitation of liability clauses at issue.
Jehly v. Brown
Colorado Court of Appeals, March 27, 2014
2014 COA 39
Fraudulent Concealment; Imputed Knowledge.
“Actual knowledge,” in the context of a fraudulent concealment claim, cannot be imputed to a principal through knowledge of its agent. Defendant Brown owned real property in Teller County and hired a general contractor to build a house on it. Before commencing, the contractor discovered that part of the property was located in a floodplain. Brown was not told of this fact.
Plaintiffs David and Peggy Jehly entered into a contact to purchase the house from Brown. Brown filled out a Seller’s Property Disclosure form by writing “New Construction” diagonally across every page and not checking any of the boxes. Before buying the house, the Jehlys were never informed that part of the property was located in a floodplain.
Approximately five years after the home purchase, heavy rains caused severe flooding and damage to the basement of the house. The Jehlys sued Brown, alleging he fraudulently concealed knowledge of the floodplain to induce plaintiffs to buy the house. During a bench trial, defendant denied having any personal knowledge of the floodplain at the time of the sale and denied that his general contractor or any subcontractors had so informed him. The trial court found as a matter of fact that he had no knowledge, and found in favor of defendant.
On appeal, plaintiffs asserts that it was error not to impute the general contractor’s knowledge that part of the property was in a floodplain to Brown. The court of appeals disagrees, and affirms. To prevail on a claim of fraudulent concealment, a plaintiff must show that a defendant actually knew of a material fact that was not disclosed. It is not enough that defendant should have or might have known the fact, and knowledge of his agent cannot be imputed for the purpose of this particular tort claim. Plaintiffs did not contest on appeal the trial court’s factual finding that defendant had no active or conscious belief or awareness of the existence of the floodplain. The trial court did not apply the wrong legal standard, because defendant did not have the requisite actual knowledge of the information allegedly concealed.