Real Estate Law

Construction Contracts 102 – Interpreting Contracts

by Ken Robinson

This is the second of a three part series on construction contracts. Please check back next week for Construction Contracts 103 - Breach, and be sure to check out last week’s Construction Contracts 101 - The Basics

The guiding principle of contract law is that a contract will be interpreted to give effect to the intention of the parties.  To discern that intention, a court will look first to the written document, the so-called "four corners rule" of contract interpretation.  If that document is ambiguous -- that is, susceptible to more than one interpretation -- the court can look outside the four corners to "extrinsic evidence."  Extrinsic evidence can include other documents, testimony of the parties as to their intent in entering into the contract, called "parole evidence," or the way the parties actually conduct themselves under the contract, particularly before a dispute arises.

Another principle of contract interpretation, not always applied with consistency, is that an ambiguous contract will be construed against the interests of the party who drafted the contract.  This means that if a party is given a contract on a take it or leave it basis with no opportunity to fairly negotiate the contract language, and the contract is susceptible to more than one interpretation in some respect, an ambiguous provision will be construed in favor of the non-drafting party.  Also, a court will always try to harmonize all parts of the contract so that if a clause is ambiguous and one interpretation of the clause creates a conflict with another non-ambiguous clause, the non-conflicting interpretation will prevail.

It is important to understand that a contract is not necessarily a static document, even where the parties don't sign any addenda or modifications.  This is because the parties can inadvertently choose one interpretation of an ambiguous provision merely by acting consistently with that interpretation, particularly before a dispute arises.  For example, if a notice requirement in a change clause is not clear, but the parties proceed on the project processing changes with no formal notice, the notice requirement will be dispensed with by a court based upon the way the parties acted.  That is, their conduct is regarded as dispositive of the parties' intentions as to the ambiguous notice provision.

It is also important to recognize that the parties can amend their contract by their very conduct even though they had no discussions about the modification and signed no addenda, and even though the contract has a requirement that any modification of the contract be in writing and signed by both parties.  In Hahl v. Langfur Const. Corp., 529 P.2d 1369, (Colo. App. 1974), the operative contract had a written change order requirement.  A dispute arose as to the validity of the subcontractor's claim for additional work,  and the general contractor defended on the grounds that the work had been performed without prior written authorization.  The Colorado Court of Appeals held that the parties had amended their contract and waived the requirement for written authorization by their words and their conduct.  Accord, Hi-Valley Constructors, Inc. v. Heyser, 428 P.2d 354 (Colo. 1967) (by their conduct, parties waived contract requirement for written authorization).

For more information on construction contracts, please contact Ken Robinson or another member of our Construction Contracts, Real Estate Law, or Construction Law & Litigation teams.

Construction Contracts 101 – The Basics

by Ken Robinson

This is the first of a three part series on construction contracts. Please check back next week for Construction Contracts 102 - Interpreting Contracts and again in two weeks for Construction Contracts 103 - Breach

Virtually all construction projects are accomplished by way of a contract of some sort, and it is important to keep basic contract law in mind when drafting, negotiating, reviewing and entering into construction contracts.  To be enforceable, a contract must be supported by consideration.  In its simplest form, consideration is a promise – a contract thus is a promise given in exchange, that is in consideration, for a promise received.  A contract does not necessarily need to be in writing; the conduct of the parties can rise to an enforceable oral contract.

In a construction setting, a contractor agrees, promises, to build a structure in exchange for the owner’s promise to pay for the construction.  Of course, the complexities of a construction project require that there be many promises given and received.  These promises create rights and obligations on both sides that are expressed in the written contract language.  However, the effect of a contract doesn’t end there, as there are often obligations that are attendant to a written contract implied by law.  For example, every contract in Colorado contains an implied duty of good faith and fair dealing.  Wells Fargo Realty Advisors Funding, Inc. v. Uioli, Inc., 872 P.2d 1359, 1362 (Colo. App. 1994).  The doctrine exists to effectuate the parties' intentions and to honor their reasonable expectations.  City of Golden v. Parker, 138 P.3d 285, 292 (Colo.2006); Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995) (Good faith performance of a contract involves “faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.”).

While it is unlikely that anyone can draft a truly "impenetrable contract," it is possible to craft a relatively clear and consistent document that is not susceptible, at least on its face, to multiple interpretations giving rise to the possibility of a dispute over contract meaning.  To do so, it is helpful to understand some of the basic rules of contract construction that a judge, or an arbitrator, will use in trying to decide a claim.

For more information on construction contracts, please contact Ken Robinson or another member of our Construction Contracts, Real Estate Law, or Construction Law & Litigation teams.

Flood Water Drainage Rights Between Adjacent Landowners

Everyone knows that water flows downhill, but what are the legal ramifications when the flow is obstructed and property damage results?  During flooding, conditions that historically allowed water to pass serenely from one property to another can be overwhelmed. Previously harmless objects in the drainage path become obstacles, and water reroutes without benefit of hydraulic design.  Who is responsible for resulting damage and under what circumstances?  The law governing the rights and obligations of the landowners is well-developed, but the wide range of property configurations and varying drainage patterns can still make assessment of the legal relationships challenging. 

Such questions often arise after unprecedented flooding, such as occurred in 2013 in and around Boulder and the Front Range of Colorado.  That event demonstrated that we still have a lot to learn about flood risks and how to manage them.  The relevant law can provide guidance as there are well-established legal rights that attend the flow and drainage of water over adjacent properties.  

Common Law Drainage Easements

The right to have water drain from one property onto another is in the nature of an easement.  In traditional legal terms, an easement is a form of “servitude” which is defined as “[a] charge or a burden resting upon one estate for the benefit or advantage of another” (Black’s Law Dictionary).  The benefitted property is known as the dominant estate, while the burdened property is known as the servient estate.  Thus a drainage easement benefits the adjacent upstream property, the dominant estate, and burdens the adjacent downstream property, the servient estate.  In some instances, though technically not an easement, the downstream property may have a right to require that the drainage from the upstream property be regulated such that the downstream flow will not be destructive.

Drainage easements can be established in several ways: (1) by an instrument of conveyance such as an easement deed; (2) by a dedication in a subdivision plat or an engineered drainage plan associated with a subdivision; or (3) by common law, that is by appellate court rulings.  It is the latter two types of drainage easements that give rise to most disputes.

Colorado law recognizes the right of the owner of an up-gradient property to have surface water drain onto an immediately adjacent, down-gradient property by way of a “natural easement for drainage.”   When natural and historic drainage conditions are modified or disturbed by construction or development, the law becomes more complex.  Generally, the owner of a down-gradient (servient estate) property is allowed to modify the drainage pattern on that property provided that the modifications do not adversely impact the drainage over the up-gradient (dominant estate) property.

The Colorado Court of Appeals summarized the common law of drainage easements as follows:

 Colorado has always followed the ‘civil law rule,’ which provides that the owner of upstream property possesses a natural easement on land downstream for drainage of water flowing in its natural course.  Also, “(n)atural drainage conditions may be altered . . . provided that water is not sent down in manner or quantity to do more harm than formerly.”  Neither the fact that the land concerned is urban rather than rural, nor the fact that the elevation on both properties has been lowered without materially altering the natural drainage flow, affords a rational basis for creating exceptions to the general rule. Colorado cases on water drainage have drawn no such distinctions.  (emphasis added)

Calvaresi v. Brannan Sand & Gravel Company, 534 P. 2d 652, 654-55 (Colo. App. 1975).  Note that, in Calvaresi, the Court of Appeals in the highlighted text indicated that drainage patterns can create drainage easements through the result of “urbanization,” that is the construction of improvements that alter the flow of water over servient estates.

Prescriptive Drainage Easement

The common law of access easements also provides for the creation of an easement by way of uncontested use over the alleged servient estate for a prescribed period of time.   Hankins v. Borland, 163 Colo. 575, 431 P.2d 1007 (1967) (holding that a drainage easement can be created by prescription, with a prescriptive period of 18 years).  Accord, Stoll v. MacPherson Duck Club, Ltd., 607 P.2d 1019, 1022 (Colo. App. 1979).

Repair and Maintenance of Drainage Easement

Though the primary purpose of a drainage easement is to allow water to flow over the dominant estate, there is an attendant, but limited, right of access over the servient estate in order to maintain drainage area such that entry onto the servient estate is not trespass.  In Shrull v. Rapasardi, 517 P.2d 860, 862 (Colo. App. 1973), plaintiffs brought an action for trespass when the defendants entered plaintiff’s property to reopen a ditch.  The trial court held that the defendants were acting lawfully in repairing the ditch.  The Court of Appeals in Shrull affirmed the trial court’s judgment, stating:

If the owner of the dominant estate does not unnecessarily inconvenience the owner of the servient estate and use of the easement is not expanded, the owner of the dominant estate may do whatever is reasonably necessary for the enjoyment of the easement, including repairs, ingress and egress, with space therefor as exigency may show.

Accord, Stoll v. MacPherson Duck Club, Ltd., 607 P.2d 1019, 1022 (Colo. App. 1979).

Liability for Impairment of Drainage Flow

If the owner of a down-gradient property subject to a drainage easement alters the drainage pattern for water flowing from the upstream, servient estate, and those changes substantially alter the flow so as to cause the water to back up onto the dominant estate, the owner of the servient estate may be liable for damages.  It is important to note that a physical alteration to a drainage area may not cause water to back up except during flood conditions, and thus the impairment may go unnoticed for years.  Nevertheless, the servient estate owner may be liable though the flooding may take place long after the alteration.  Also, it is useful to note that, in Colorado, the governmental immunity statute, C.R.S. §§ 24-10-101, et seq., does not apply to drainage easement disputes.  Upper Platte and Beaver Canal Co. v. Riverview Commons General Improvement Dist., 250 P.3d 711, 714-15 (Colo. App. 2010).  Thus, even if the downstream drainage blockage is created by a governmental entity, it could still be required to remove the blockage and even found liable for damages.

Upstream property owners have standing – that is, the right to file suit – to seek recovery of damages for the injury resulting from flood waters backed up by blockage of the downstream drainage.  In Romano v. Village of Glenview, 660 N.E.2d 56 (Ill. App. 1995), homeowners brought an action against the developer of a residential subdivision for injunctive and declarative relief seeking to have the developer replace drainage channels on their properties with underground drainage systems or, in the alternative, to require that the natural flow of surface water be restored so as not to flood the plaintiffs’ land.   In Romano, the city intervened, filing a motion to dismiss—based on governmental immunity and lack of standing—and contending that the plaintiffs had not alleged injury in fact.  The trial court granted the motion.  The Illinois Court of Appeals reversed, holding that the plaintiffs had alleged injury-in-fact that the drainage channels created unreasonably dangerous conditions for their children, deprived them of the use and enjoyment of their yards, and created soil erosion in their yards. 

For more information on flood water drainage rights, contact Ken Robinson or another member of our Drainage Disputes or Real Estate Law teams.