2014 COA 118
Colo. Ct. App.2014Background
- RMNG (natural gas utility) and CMC (junior college district) executed a lease in Aug. 2011 allowing RMNG to build and operate a compressor station on CMC property; lease term: 20 years with a 20-year option.
- Colorado statute authorizes junior college districts to lease district property for terms not exceeding three years.
- After RMNG spent roughly $2.5 million and made lease payments, CMC’s board repudiated the lease in May 2012 and refunded the payments.
- RMNG sued for declaratory relief, specific performance, damages, and injunctive relief; district court dismissed/summarily adjudicated, holding the lease void as beyond CMC’s statutory authority and denying reformation/severance, estoppel, and additional equitable relief.
- The district court found RMNG was not entitled to further restitution because CMC had refunded payments; RMNG appealed only the summary-judgment rulings (not the denial of specific performance).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of lease that exceeds statutory 3-year limit | Lease should be enforced for the statutorily permissible three years (court should reform/limit duration) | Lease is ultra vires and therefore void in its entirety because statute unambiguously limits leases to three years | Entire lease is void and unenforceable; court may not rewrite duration to three years |
| Severability/savings clause for duration term | Severability clause allows excision of the unlawful excess so first three years remain enforceable | Severability cannot salvage a contract that is ultra vires in its entirety; nothing remains to sever | Duration term not severable; no valid contract remains to enforce |
| Equitable estoppel against the municipality | CMC should be estopped from denying validity because RMNG detrimentally relied and made expenditures | Municipality cannot be estopped where contract is beyond its statutory power; contractors are charged with notice of statutory limits | Equitable estoppel unavailable; CMC may deny validity despite RMNG’s reliance |
| Availability of further equitable relief/restitution (beyond refunded payments) | Normandy and La Plata require a hearing to craft full compensation for RMNG’s detrimental reliance | CMC refunded RMNG; Normandy’s restitutionary remedy applies only where municipality retains benefit without compensating the private party | No further relief required; RMNG was fully compensated by refund and summary judgment affirmed |
Key Cases Cited
- Normandy Estates Metropolitan Recreation Dist. v. Normandy Estates, Ltd., 553 P.2d 386 (Colo. 1976) (equitable restitution allowed where municipality retains benefit under an unenforceable contract)
- La Plata Medical Ctr. Assocs. v. United Bank, 857 P.2d 410 (Colo. 1993) (discusses and applies Normandy’s restitution principle)
- Miller v. Marshall Cnty., 641 N.W.2d 742 (Iowa 2002) (a municipal contract made beyond statutory authority is void in its entirety)
- Smith v. McCullough, 270 U.S. 456 (U.S. 1926) (leases contravening legislative restrictions on duration are entirely void)
- Mountjoy & Frewen v. Cheyenne Cnty. High Sch. Dist., 240 P. 464 (Colo. 1925) (municipal contracts beyond statutory authority are unenforceable)