In Makoto USA, Inc., v. Russell, 08CA1372 (Nov. 25, 2009), the Colorado Court of Appeals ruled that the economic loss rule barred plaintiff's civil theft claim because it was inextricably intertwined with plaintiff's breach of contract claim.
In Makoto, plaintiff asserted claims of breach of contract and civil theft against the defendants arising out of plaintiff's purchase of defendants' business. Among the purchased assets was a utility patent, which, unbeknownst to the plaintiff, was unenforceable because the defendants had failed to make certain maintenance payments. The purchase agreement between the parties required plaintiff to pay defendants annual installments of $50,000 in satisfaction of the purchase price. Upon learning of the unenforceable patent, plaintiff ceased making payments and filed its action for breach of contract and civil theft.
The issue on appeal was whether the civil theft claim under Colorado's stolen property statute, Section 18-4-405, C.R.S. 2009, which provides for treble damages and attorneys fees, was barred by the economic loss rule. The Court of Appeals held that the civil theft claim was predicated on the existence of a breach of the contract, and therefore the economic loss rule barred recovery for civil theft.
The economic loss rule provides that "a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such breach absent an independent duty of care under tort law." Id. For there to be a cognizable independent duty, "(1) the duty must arise from a source other than the relevant contract, and (2) the duty must not be a duty also imposed by the contract." Id.
The Makoto Court found that the civil theft claim was wholly dependent on the plaintiff's contract claim. The relief sought in the two claims were the same, and the theft claim could not have been proven without first proving that defendants also breached the contract. "Had defendants complied with the their reciprocal contractual duties, plaintiff would have no colorable claim that defendants 'stole' a contractual payment." Id. The Court further found that the legislature did not intend the stolen property statute be used to expand contractual remedies.
Posted By: Brent W. Houston, Esq.
Wednesday, December 16, 2009
Monday, December 14, 2009
ARBITRATORS NOT REQUIRED TO EXPLAIN AWARDS
The Colorado Court of Appeals has ruled "as a matter of Colorado law that arbitrators are not required to explain their reasons for issuing awards authorized by an agreement." Treadwell v. Village Homes of Colorado, Inc., 08CA0304 (Nov. 25, 2009). "Absent an affirmative showing of invalidity, arbitration awards may not be set aside for want of explanation (or ... remand for explanation)." Id.(internal quotations omitted). "'A mere ambiguity in the opinion accompanying an award, which permits the inference that the arbitrator may have exceeded his authority, is not a reason for refusing to enforce the award.'" Id. (quoting United Steel Workers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 598 (S. Ct. 1960).
In the Treadwell case, the defendant, Village Homes, appealed the district court's confirmation of the arbitrator's award of attorneys' fees, costs, and post- and pre-judgment interest in favor of the plaintiffs. The arbitration provision contained in the sales contract provided for award of attorneys' fees and expenses to the prevailing party "upon a showing of egregious conduct." Id. The arbitrator awarded the plaintiffs $525,000 in damages and close to $300,000 in attorneys' fees, costs, and pre-judgment interest, but made no written findings. On appeal, Village Homes argued that the arbitrator exceeded its powers with respect to the award of attorneys' fees, costs and interest. The Court of Appeals disagreed.
The Court of Appeals ruled that the award of attorneys fees and costs in this case involved the merits of the dispute, because the arbitration clause provide for attorneys' fees and costs for egregious conduct, and not whether the arbitrator was empowered to make such award. Further, the merits of dispute are not subject to judicial review, and an arbitrator's award cannot be overturned simply because the arbitrator did not explain the reasoning for the award.
The Court of Appeals noted that parties can require the arbitrator to issue written "findings," and in that instance, the arbitrator's failure to issue findings would exceed the arbitrator's powers. However, the merits of the case shown in the findings would not be subject to judicial review. Only whether the award was within the powers of the arbitrator would be reviewable.
Posted By: Brent W. Houston, Esq.
In the Treadwell case, the defendant, Village Homes, appealed the district court's confirmation of the arbitrator's award of attorneys' fees, costs, and post- and pre-judgment interest in favor of the plaintiffs. The arbitration provision contained in the sales contract provided for award of attorneys' fees and expenses to the prevailing party "upon a showing of egregious conduct." Id. The arbitrator awarded the plaintiffs $525,000 in damages and close to $300,000 in attorneys' fees, costs, and pre-judgment interest, but made no written findings. On appeal, Village Homes argued that the arbitrator exceeded its powers with respect to the award of attorneys' fees, costs and interest. The Court of Appeals disagreed.
The Court of Appeals ruled that the award of attorneys fees and costs in this case involved the merits of the dispute, because the arbitration clause provide for attorneys' fees and costs for egregious conduct, and not whether the arbitrator was empowered to make such award. Further, the merits of dispute are not subject to judicial review, and an arbitrator's award cannot be overturned simply because the arbitrator did not explain the reasoning for the award.
The Court of Appeals noted that parties can require the arbitrator to issue written "findings," and in that instance, the arbitrator's failure to issue findings would exceed the arbitrator's powers. However, the merits of the case shown in the findings would not be subject to judicial review. Only whether the award was within the powers of the arbitrator would be reviewable.
Posted By: Brent W. Houston, Esq.
Wednesday, December 9, 2009
COLORADO COURT OF APPEALS RULES ON SCOPE OF HEALTH CARE PROXY
Sections 15-18.5-103 and 15-18.5-104, C.R.S. 2009, provide for appointment of a person to act as a health care proxy to make medical treatment and health care benefit decisions on behalf of an incapacitated person. The Colorado Court of Appeals recently ruled that a decedent's estate was not bound by an arbitration provision contained in nursing home admission documents signed by the decendent's health care proxy. Estate of Lujan v. Life Care Centers of America, d/b/a Evergreen Nursing Home, Case No. 08CA2367 (Nov. 25, 2009).
The Court ruled that the person appointed as the decedent's health care proxy did not have the authority to enter into an arbitration agreement because a decision to arbitrate is not a "medical treatment decision," and therefore the the estate was not bound by the arbitration agreement contained in the admission documents. Id. Note that the issue of whether an agreement to arbitrate is a "health care benefit decision" was resolved in the negative at the trial court level and was not raised on appeal.
The Court agreed that the decision to admit an incapacited person to a nursing home facility may fall with the definition of "medical treatment decision," but concluded that the General Assembly intended that this term be construed narrowly. In support of this conclusion, the Court pointed to Section 13-64-403(7), C.R.S. 2009, which provides that a health care provider cannot condition provision of medical care services on the patient's signing an arbitration agreement, and to Section 13-64-403(1), C.R.S. 2009, which requires arbitration agreements to be entered into voluntarily by the patient.
The Court further concluded that because of the incapacitated person's inherent lack of choice in appointment of the proxy "the health care proxy's authority should be viewed as a last resort and should be strictly limited to those decisions that are necessary to preserve a patient's health and well-being and that the patient would likely make were he or she able to do so." Id.
Posted By: Brent W. Houston, Esq.
The Court ruled that the person appointed as the decedent's health care proxy did not have the authority to enter into an arbitration agreement because a decision to arbitrate is not a "medical treatment decision," and therefore the the estate was not bound by the arbitration agreement contained in the admission documents. Id. Note that the issue of whether an agreement to arbitrate is a "health care benefit decision" was resolved in the negative at the trial court level and was not raised on appeal.
The Court agreed that the decision to admit an incapacited person to a nursing home facility may fall with the definition of "medical treatment decision," but concluded that the General Assembly intended that this term be construed narrowly. In support of this conclusion, the Court pointed to Section 13-64-403(7), C.R.S. 2009, which provides that a health care provider cannot condition provision of medical care services on the patient's signing an arbitration agreement, and to Section 13-64-403(1), C.R.S. 2009, which requires arbitration agreements to be entered into voluntarily by the patient.
The Court further concluded that because of the incapacitated person's inherent lack of choice in appointment of the proxy "the health care proxy's authority should be viewed as a last resort and should be strictly limited to those decisions that are necessary to preserve a patient's health and well-being and that the patient would likely make were he or she able to do so." Id.
Posted By: Brent W. Houston, Esq.
Wednesday, November 11, 2009
PARTITIONING COLORADO REAL ESTATE: HOW TO FORCE A SALE
Any party with an interest in real property can force a partition. But, partition in kind (physical partition) is favored over a forced sale. A Colorado district court may only direct the sale of property which is subject to being partitioned under limited circumstances. See 4 Thompson on Real Property § 38.04 , (David Thomas ed. 1994). To force a sale a party must have a court appointed commissioner (one or more) report to the Court and have the Court find that “partition of the property cannot be made without manifest prejudice to the rights of any interested party.” C. R. S. § 38-28-107 [emphasis added]. Only in that event does the Court have the power to direct a public sale. Id. But, what is “manifest prejudice” and how do you prove it?
“Manifest prejudice” is directly addressed in Young Properties v. Wolflick, 87 P.3d 235, 238 (Colo. App. 2003), which states:
"No Colorado court has defined 'manifest prejudice' in the context of a partition action. However, other jurisdictions require a showing of 'great prejudice' before partition by sale may be ordered. In our view 'great prejudice' is equivalent to 'manifest prejudice.' See Webster’s Third New International Dictionary 1375 (1986) (defining “manifest” as capable of being readily and instantly perceived, obvious, overt). In those other jurisdictions, great prejudice has been shown when either (1) the physical characteristics of the land make it impracticable to divide into equal parts; or (2) the value of the whole is materially greater than the sum of its parts. See Ashley v. Baker, 867 P.2d 792, 796 (Alaska 1994) (test for prejudice is whether combined value of the shares would be materially less than the whole); Wilcox v. Willard Shopping Ctr. Assocs., 208 Conn. 318, 544 A.2d 1207 (1988) (partition in kind of shopping center held to be impracticable); Boltz v. Boltz, 133 Wis.2d 278, 282, 395 N.W.2d 605, 607 (Ct. App. 1986); Thompson on Real Property, supra. We agree with those decisions. [Emphasis added.]"
Thus, if you can show that the physical characteristics of the land make it impracticable to divide into two equal parts or that the value of the whole is materially greater than the sum of any parts that could be created by physical partition, you should obtain an order forcing a public sale.
Physical Characteristics Making It Impracticable to Divide Property Into Equal Parts
Disparities in such factors as topography, slopes, views, drainage, access, water zones, sewage disposal, or existing utilities may make it impracticable to physically divide the property without substantial prejudice to anyone. The law also allows for creative, but logical arguments about properties based on their location. For instance one can argue the absence of an approved site-specific development plan for property whose location makes its highest and best use a residential neighborhood community makes physical partition inherently speculative and prejudicial. This conclusion flows from the inability of owners to reasonably calculate future development costs or revenues without the vested rights which arise by operation of law upon governmental approval of a site specific development plan. See, C.R.S. § 24-68-101, et seq.
Value of the Whole Materially Greater Than the Sum of Parts
Certain land is more valuable as a whole than when divided into smaller parcels. This is true when various physical features (water, views, road access, drainage) must exist together to create higher value. For property slated for residential neighborhood community development, land use planning and engineering experts may be able to demonstrate the entire acreage has a greater net value than would the sum of the net values of parcels resulting from physical partition. This conclusion obtains when smaller parcels would be created that either cannot be developed or for which additional Special Districts, engineering, planning, and legal costs would decrease net value substantially. Thus, when certain properties are subject to being partitioned physically, a party may be able to show the separate costs for soil evaluations, water and sewer engineering studies, and the other various aspects of engineering and community planning required would be duplicated or substantially increased.
In conclusion, either one of two factors alone may justify a finding that a property cannot be partitioned without manifest to any interested party. One factor is that the physical characteristics make it impracticable to divide into parts. The other factor is that the value as a whole is greater than the sum of the values of the parts to result from partition.
Posted By: Wesley B. Howard, Esq.
“Manifest prejudice” is directly addressed in Young Properties v. Wolflick, 87 P.3d 235, 238 (Colo. App. 2003), which states:
"No Colorado court has defined 'manifest prejudice' in the context of a partition action. However, other jurisdictions require a showing of 'great prejudice' before partition by sale may be ordered. In our view 'great prejudice' is equivalent to 'manifest prejudice.' See Webster’s Third New International Dictionary 1375 (1986) (defining “manifest” as capable of being readily and instantly perceived, obvious, overt). In those other jurisdictions, great prejudice has been shown when either (1) the physical characteristics of the land make it impracticable to divide into equal parts; or (2) the value of the whole is materially greater than the sum of its parts. See Ashley v. Baker, 867 P.2d 792, 796 (Alaska 1994) (test for prejudice is whether combined value of the shares would be materially less than the whole); Wilcox v. Willard Shopping Ctr. Assocs., 208 Conn. 318, 544 A.2d 1207 (1988) (partition in kind of shopping center held to be impracticable); Boltz v. Boltz, 133 Wis.2d 278, 282, 395 N.W.2d 605, 607 (Ct. App. 1986); Thompson on Real Property, supra. We agree with those decisions. [Emphasis added.]"
Thus, if you can show that the physical characteristics of the land make it impracticable to divide into two equal parts or that the value of the whole is materially greater than the sum of any parts that could be created by physical partition, you should obtain an order forcing a public sale.
Physical Characteristics Making It Impracticable to Divide Property Into Equal Parts
Disparities in such factors as topography, slopes, views, drainage, access, water zones, sewage disposal, or existing utilities may make it impracticable to physically divide the property without substantial prejudice to anyone. The law also allows for creative, but logical arguments about properties based on their location. For instance one can argue the absence of an approved site-specific development plan for property whose location makes its highest and best use a residential neighborhood community makes physical partition inherently speculative and prejudicial. This conclusion flows from the inability of owners to reasonably calculate future development costs or revenues without the vested rights which arise by operation of law upon governmental approval of a site specific development plan. See, C.R.S. § 24-68-101, et seq.
Value of the Whole Materially Greater Than the Sum of Parts
Certain land is more valuable as a whole than when divided into smaller parcels. This is true when various physical features (water, views, road access, drainage) must exist together to create higher value. For property slated for residential neighborhood community development, land use planning and engineering experts may be able to demonstrate the entire acreage has a greater net value than would the sum of the net values of parcels resulting from physical partition. This conclusion obtains when smaller parcels would be created that either cannot be developed or for which additional Special Districts, engineering, planning, and legal costs would decrease net value substantially. Thus, when certain properties are subject to being partitioned physically, a party may be able to show the separate costs for soil evaluations, water and sewer engineering studies, and the other various aspects of engineering and community planning required would be duplicated or substantially increased.
In conclusion, either one of two factors alone may justify a finding that a property cannot be partitioned without manifest to any interested party. One factor is that the physical characteristics make it impracticable to divide into parts. The other factor is that the value as a whole is greater than the sum of the values of the parts to result from partition.
Posted By: Wesley B. Howard, Esq.
Homebuyer Tax Credit Extended and Liberalized
The popular tax credit available to first-time homebuyers was extended and liberalized by enactment of the "Worker, Homeownership, and Business Assistance Act of 2009" (H.R. 3548) on November 6, 2009.
The top credit for qualifying first-time home purchases is $8,000 ($4,000 for a married person filing separately) or 10% of the residence's purchase price, whichever is less.
The first-time homebuyer credit is extended to apply to a principal residence purchased before May 1, 2010, and also applies to a principal residence purchased before July 1, 2010, pursuant to a written contract entered into prior to May 1, 2010.
In addition to first-time homebuyers, the credit may be claimed by a homeowner who is a "long-term resident," which means a person who maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that the person purchases the subsequent residence. There is no requirement that the current home be sold in order to qualify for the credit, but the new residence must become the homeowner's principal residence. The maximum credit for aqualifying existing homeowner is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less.
For purchases after November 6, 2009, the homebuyer credit phases out at higher modified AGI levels. For individuals, the phaseout range is between $125,000 and $145,000, and for persons filing joint returns, the range is between $225,000 and $245,000.
There also is a new price cap for the credit. For purchases after November 6, 2009, the homebuyer credit cannot be claimed for a home if its purchase price exceeds $800,000. Importantly, there is no phaseout. If the purchase price exceeds $800,000 by any amount, the entire credit is lost.
The new law includes several new anti-abuse rules. These include: (1) beginning with the 2010 tax returns, settlement statements for the qualifying residence must be attached to the taxpayer's returns; (2) for purchases after November 6, 2009, the taxpayer must be at least 18 as of the date of purchase; (3) for purchases after November 6, 2009, the taxpayer cannot be a person who can be claimed as a dependent by another person for the tax year of purchase; and (4) certain related-party restrictions.
Posted By: Brent W. Houston, Esq.
The top credit for qualifying first-time home purchases is $8,000 ($4,000 for a married person filing separately) or 10% of the residence's purchase price, whichever is less.
The first-time homebuyer credit is extended to apply to a principal residence purchased before May 1, 2010, and also applies to a principal residence purchased before July 1, 2010, pursuant to a written contract entered into prior to May 1, 2010.
In addition to first-time homebuyers, the credit may be claimed by a homeowner who is a "long-term resident," which means a person who maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that the person purchases the subsequent residence. There is no requirement that the current home be sold in order to qualify for the credit, but the new residence must become the homeowner's principal residence. The maximum credit for aqualifying existing homeowner is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less.
For purchases after November 6, 2009, the homebuyer credit phases out at higher modified AGI levels. For individuals, the phaseout range is between $125,000 and $145,000, and for persons filing joint returns, the range is between $225,000 and $245,000.
There also is a new price cap for the credit. For purchases after November 6, 2009, the homebuyer credit cannot be claimed for a home if its purchase price exceeds $800,000. Importantly, there is no phaseout. If the purchase price exceeds $800,000 by any amount, the entire credit is lost.
The new law includes several new anti-abuse rules. These include: (1) beginning with the 2010 tax returns, settlement statements for the qualifying residence must be attached to the taxpayer's returns; (2) for purchases after November 6, 2009, the taxpayer must be at least 18 as of the date of purchase; (3) for purchases after November 6, 2009, the taxpayer cannot be a person who can be claimed as a dependent by another person for the tax year of purchase; and (4) certain related-party restrictions.
Posted By: Brent W. Houston, Esq.
Thursday, October 29, 2009
Colorado Court of Appeals Rules on Piercing Corporate Veil
In a newly published decision, McCallum Family LLC v. Winger, Case No. 09CA0212 (Colo. App. Oct. 29, 2009), the Colorado Court of Appeals ruled on several interesting issues related to "piercing the corporate veil." In general, a corporation or other legal entity is treated as a legal "person" or entity separate and apart from its owners and managers. This rule protects owners and managers of an entity from personal liability for the entity's debts. This protection or "veil," however, may be pierced in extraordinary circumstances, and under those circumstances, owners and managers of an entity may be held liable for liabilities of the entity.
There is a three part test under Colorado law to determine whether it is appropriate to pierce the corporate veil. First, the court determines whether the "corporate entity is the 'alter ego' of the person or entity in issue." Second, the court determines whether the use of the entity form was "used to perpetrate a fraud or defeat a rightful claim." Finally, the court considers "whether an equitable result will be achieved by disregarding the [entity] form and holding a shareholder or other insider personally liable for the acts of the business entity."
Courts consider a number of factors in determining whether an entity is an alter ego of an owner or manager, including, without limitation, commingling of funds and assets, inadequate corporate records, thin capitalization, and disregard for legal formalities.
In Winger, the Court applied the alter ego test to Marc Winger even though he had no formal ownership in the entity and held no formal office in the entity, like officer or director. The evidence showed that Marc Winger essentially functioned as an owner of the entity and was the primary manager of its business. The Court held that "an individual who acts as a de facto shareholder, officer, or director may be treated as an equitable owner and held to be the alter ego of a corporation."
The second prong of the veil-piercing test requires a showing that the entity was "used to perpetrate a fraud or defeat a rightful claim." The Court further defined this rule by stating that the conduct does not need to be directed at the plaintiff-creditor, but rather "the creditor seeking to pierce the veil must show an effect on its lawful rigths as a creditor resulting from abuse of the corporate form." In Winger, the requisite effect was established through evidence that the defendants removed all funds from the corporation, leaving no funds to satisfy the debt owed to the plaintiff.
With respect to the final prong of the veil-piercing test, the court must determine whether an equitable result will be achieved by piercing the corporate veil and holding the owner or manager in question liable for the acts of the entity. As to this determination, the Court deferred to the trial court's discretion.
Another interesting issue raised in Winger was whether officers of a corporation owe fiduciary duties to creditors when the corporation is insolvent. Colorado cases have held that officers and directors of insolvent corporations do owe fiduciary duties to creditors. The Court questioned whether this common law rule was overturned by the amendment of C.R.S. 7-108-401(5) in 2006, which section provides that a "director or officer of a corporation, in the performance of duties in that capacity, shall not have any fiduciary duty to any creditor of the corporation arising only from the status as a creditor." The Court did not decide on this issue, but perhaps raised it for future consideration by the General Assembly or the Supreme Court.
Posted By: Brent W. Houston, Esq.
There is a three part test under Colorado law to determine whether it is appropriate to pierce the corporate veil. First, the court determines whether the "corporate entity is the 'alter ego' of the person or entity in issue." Second, the court determines whether the use of the entity form was "used to perpetrate a fraud or defeat a rightful claim." Finally, the court considers "whether an equitable result will be achieved by disregarding the [entity] form and holding a shareholder or other insider personally liable for the acts of the business entity."
Courts consider a number of factors in determining whether an entity is an alter ego of an owner or manager, including, without limitation, commingling of funds and assets, inadequate corporate records, thin capitalization, and disregard for legal formalities.
In Winger, the Court applied the alter ego test to Marc Winger even though he had no formal ownership in the entity and held no formal office in the entity, like officer or director. The evidence showed that Marc Winger essentially functioned as an owner of the entity and was the primary manager of its business. The Court held that "an individual who acts as a de facto shareholder, officer, or director may be treated as an equitable owner and held to be the alter ego of a corporation."
The second prong of the veil-piercing test requires a showing that the entity was "used to perpetrate a fraud or defeat a rightful claim." The Court further defined this rule by stating that the conduct does not need to be directed at the plaintiff-creditor, but rather "the creditor seeking to pierce the veil must show an effect on its lawful rigths as a creditor resulting from abuse of the corporate form." In Winger, the requisite effect was established through evidence that the defendants removed all funds from the corporation, leaving no funds to satisfy the debt owed to the plaintiff.
With respect to the final prong of the veil-piercing test, the court must determine whether an equitable result will be achieved by piercing the corporate veil and holding the owner or manager in question liable for the acts of the entity. As to this determination, the Court deferred to the trial court's discretion.
Another interesting issue raised in Winger was whether officers of a corporation owe fiduciary duties to creditors when the corporation is insolvent. Colorado cases have held that officers and directors of insolvent corporations do owe fiduciary duties to creditors. The Court questioned whether this common law rule was overturned by the amendment of C.R.S. 7-108-401(5) in 2006, which section provides that a "director or officer of a corporation, in the performance of duties in that capacity, shall not have any fiduciary duty to any creditor of the corporation arising only from the status as a creditor." The Court did not decide on this issue, but perhaps raised it for future consideration by the General Assembly or the Supreme Court.
Posted By: Brent W. Houston, Esq.
Tuesday, October 13, 2009
Colorado Supreme Court Rules on Adverse Possession of Parking Space
The Colorado Supreme Court recently ruled that an entity claiming title to a parking space in a condominium community by adverse possession under color of title could not sell the space free from the transfer restrictions in the condominium declaration. B.B. & C. Partnership, v. The Edelweiss Condominium Assoc'n, Case no. 08SC394 (Colo. S.Ct., October 13, 2009).
This case involved a parking space located in the Edelweiss Condominiums in Vail, referred to as "parking space 21." In 1976, BB&C purported to purchase parking space 21 from a former owner of a condominium unit, receiving a warranty deed to the space which provided, in pertinent part, that the conveyance was "subject to the terms, covenants, conditions, easements, restrictions, uses, limitations and obligations set forth in [the]Declaration" governing the condominium. The condo declaration restricted sale of parking spaces to other condo owners. BB&C was not a condo owner.
After obtaining the deed for parking space 21, an employee of BB&C parked his car in the space for a period of more than 20 years, during which time BB&C paid all taxes, maintenance fees, and insurances fees. In 2003, BB&C attempted to sell parking space 21 to a third-party non-condominium owner, but the condo association blocked BB&C's access to the space -- access being through a locked gate. BB&C filed a quiet title action claiming unrestricted fee simple ownership of parking space 21 by adverse possession under color of title pursuant to C.R.S. sec. 38-41-108.
C.R.S. 38-41-108 provides that person who is in possession of land for seven successive years, under color of title, made in good faith, and during that time pays taxes assessed on the land shall be adjudged the owner of the land "to the extent and according to the purport of his paper title." "Color of title" means title evidenced by a written document purporting to convey title to real property, but which fails to do so because of some defect.
The Supreme Court ruled that BB&C could obtain a quiet title judgment recognizing its ownership of parking space 21 if it proves its claim at the trial court level, but it is not entitled to a judgment for unrestricted fee simple ownership, title would be subject to the transfer restrictions in the condo declaration. It reasoned that parking space 21 was a limited common element of the condominium community subject to the restrictions contained in the condo declaration, and therefore the person from whom BB&C purported to purchase the space did not have unrestricted title, rather such title was subject to the condo declaration restrictions. Also, the "paper title" received by BB&C specifically provided that it was subject to the condo declaration. As a result, if BB&C successfully proves its quiet title claim, then its title will likewise be subject to the transfer restrictions contained in the condo declaration, effectively limiting the units sale to other condo owners.
Posted By: Brent W. Houston, Esq.
This case involved a parking space located in the Edelweiss Condominiums in Vail, referred to as "parking space 21." In 1976, BB&C purported to purchase parking space 21 from a former owner of a condominium unit, receiving a warranty deed to the space which provided, in pertinent part, that the conveyance was "subject to the terms, covenants, conditions, easements, restrictions, uses, limitations and obligations set forth in [the]Declaration" governing the condominium. The condo declaration restricted sale of parking spaces to other condo owners. BB&C was not a condo owner.
After obtaining the deed for parking space 21, an employee of BB&C parked his car in the space for a period of more than 20 years, during which time BB&C paid all taxes, maintenance fees, and insurances fees. In 2003, BB&C attempted to sell parking space 21 to a third-party non-condominium owner, but the condo association blocked BB&C's access to the space -- access being through a locked gate. BB&C filed a quiet title action claiming unrestricted fee simple ownership of parking space 21 by adverse possession under color of title pursuant to C.R.S. sec. 38-41-108.
C.R.S. 38-41-108 provides that person who is in possession of land for seven successive years, under color of title, made in good faith, and during that time pays taxes assessed on the land shall be adjudged the owner of the land "to the extent and according to the purport of his paper title." "Color of title" means title evidenced by a written document purporting to convey title to real property, but which fails to do so because of some defect.
The Supreme Court ruled that BB&C could obtain a quiet title judgment recognizing its ownership of parking space 21 if it proves its claim at the trial court level, but it is not entitled to a judgment for unrestricted fee simple ownership, title would be subject to the transfer restrictions in the condo declaration. It reasoned that parking space 21 was a limited common element of the condominium community subject to the restrictions contained in the condo declaration, and therefore the person from whom BB&C purported to purchase the space did not have unrestricted title, rather such title was subject to the condo declaration restrictions. Also, the "paper title" received by BB&C specifically provided that it was subject to the condo declaration. As a result, if BB&C successfully proves its quiet title claim, then its title will likewise be subject to the transfer restrictions contained in the condo declaration, effectively limiting the units sale to other condo owners.
Posted By: Brent W. Houston, Esq.
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