Fraud Litigation, Election of Remedies and the Real Estate Contract

As may occur, Colorado purchasers of real property, whether it be a principal residence or investment property, learn that real property may have a construction defect or the purchase may have resulted due to false misrepresentations.

Due to the website constraints, the scope of this article does not address what constitutes fraud or what representations provider by the Seller raise to the level of material misrepresentation or mere puffery.  This article addresses remedies available to a wronged Buyer of real property and further addresses election-of-remedies considerations.

Assuming that the representation by Seller raises to the level of fraud or material misrepresentation, typically, an attorney drafts the fraud claim, allowing for two inconsistent remedies.  For fraud, the Buyer may rescind the contract and claim restitution and be put in a position before the breach occurred.  This is essentially a tort claim for relief.  Alternatively, the Buyer can reaffirm the real estate contract, and sue for damages.  This is essentially a contract claim for relief.

As the facts are the same set of facts that entitled the Buyer to two clearly inconsistent prospects for relief, at what point must a Buyer elect, if at all, which of the above remedies he wishes to pursue in Colorado and can the wrongdoer force such an election upon the Buyer?

A quick summary of other jurisdictions is not particular instructive on these issues.  California, for example, allows the Buyer to pursue both theories of relief and such election needs not be made until trial.  Other jurisdictions have ruled that pursuing one theory of relief, such as rescission, may preclude suing for damages and vice versa. Other jurisdictions have ruled that one particular claim of relief may or may not bar recovery on the other theory of relief.

Colorado takes an interesting approach.  Colorado has clearly stated that the choice of remedies  cannot be forced upon the Buyer by the wrongdoer.  H & K Automotive Supply Co.  v.  Moore & Co., 657 P.2d 986, 988 (Colo. App. 1982).

In Colorado in the event that the Buyer accepts rescission by tendering the property back to Seller, is he barred from bringing a claim for damages?  The answer depends on whether the Buyer by accepting rescission, the Buyer is affirmatively agreeing to forego his/her claim for damages.   Colorado courts are inclined to allow the conflicting remedies to be pursued, especially where relief of one proposed remedy is or becomes unavailable.   See generally, Rice v. Hilty, 559 P.2d 725, 726-7 (Colo. App.  1976); Schtul v. Wilson, 266 P 112 (Colo. 1928).

Call Schunk & Associates for assistance with your potential fraud claim and issues surrounding collection and trial.

Categories: Fraud Litigation