Opinion ID: 1121444
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Heading Rank: 1

Heading: the right to recover against municipal corporations

Text: In Normandy Estates Metropolitan Recreation District v. Normandy Estates Limited, 191 Colo. 292, 553 P.2d 386 (1976), this court considered the issue of whether a private party who contracts with a municipal entity may successfully invoke equitable relief when the municipality refuses either to perform the contract or to return to the plaintiff the consideration it has received. Id. at 295, 553 P.2d at 388. The electors of Normandy Estates Metropolitan Recreation District (the recreation district) had approved a bond issue for the purpose of purchasing or constructing recreational facilities. Id. at 293-94, 553 P.2d at 387. The recreation district subsequently entered into an agreement to purchase a swimming pool, among other things, from Normandy Estates Limited, a Colorado corporation (the private corporation). The swimming pool was installed on land owned by an officer of the private corporation; in conjunction with the agreement to purchase the pool, the recreation district entered into a lease for the land with the officer. Id. at 294, 553 P.2d at 387. Two years after the initial agreements were entered into, the recreation district decided to purchase the land upon which the swimming pool was installed. The recreation district and the private corporation rescinded the first purchase agreement and lease, and entered into a second purchase agreement wherein the recreation district agreed to acquire both the tract of land and the recreational facilities for a new purchase price. Id. The second agreement gave the recreation district credit for prior payments made by the recreation district, and the balance due was represented by two promissory notes secured by a deed of trust. Id. When one of the two promissory notes became due, the recreation district refused to pay the amount due, on the ground that the indebtedness was void as a result of the recreation district's failure to comply with section 89-12-25(1), C.R.S. (1953 & 1960 Supp.). [6] The private corporation subsequently initiated a foreclosure action wherein the private corporation argued that, if the indebtedness was deemed invalid, judgment should be entered in its favor on theories of either equitable estoppel or unjust enrichment. Normandy Estates, 191 Colo. at 294, 553 P.2d at 387. The district court declined to issue a temporary restraining order against the foreclosure action, and the private corporation purchased the property at a public auction. The district court subsequently determined that the note and deed of trust were void as a result of the recreation district's failure to comply with the relevant statute. The district court set aside the foreclosure action, and found that the recreation district was required to pay the balance due on the second purchase agreement to the private corporation. The court of appeals affirmed, and held that, where improvements had been added by the [recreation] district and the property had substantially increased in value, it would be inequitable to penalize the [recreation] district by permitting rescission [of the second purchase agreement]. Id. at 295, 553 P.2d at 388. The recreation district sought review in this court. We noted that, prior to the present case, recovery was not afforded to parties contracting with municipal corporations, premised in part on the rationale that a party dealing with a municipal corporation is bound to see to it that all mandatory provisions of the law are complied with, and if he neglects such precaution he becomes a mere volunteer, and must suffer the consequences. Id. at 296, 553 P.2d at 389. We rejected that rule, however, because its application yielded unduly harsh results. We conversely concluded that where property is furnished to a municipal corporation under an unenforceable contract, and the municipality has not paid for the property, then the seller or person supplying the property may, upon equitable terms, recover in specie.  Id. With respect to the facts of that case, we concluded that it would be grossly inequitable to permit the [recreation] district to continue to enjoy the benefits of the contract without fully compensating  the private corporation. Id. at 297, 553 P.2d at 389-90. We stated as follows: The trial court entered judgment for the unpaid balance of the purchase price, and the court of appeals affirmed. We believe, however, that under the particular facts of this case the proper remedy would have been to grant to the district the option either to pay the balance, with interest, or to return the property and facilities in question to [the private corporation]. Id., 553 P.2d at 390. [7] Under either option, the recreation district was released from any further liability. We accordingly modified the court of appeals judgment and remanded the case. Thus, under our holding in Normandy Estates, we approved of an equitable remedy which permitted the private corporation to recover either that which it contracted for under the second purchase agreement, the balance of the purchase price owed plus interest, or to have title to the property returned to it; the recreation district, however, received the power to choose between options. See id. at 295, 553 P.2d at 388. In fashioning an equitable remedy in the present case, the district court awarded the hospital district and First Federal substantially the same relief.