Can property buyers recover damages for defects they knew about at purchase? Black Diamond v. Big Cottonwood Explained

The Utah Court of Appeals addressed an important question about contract damages and property law in Black Diamond v. Big Cottonwood, ruling that buyers who purchase property with full knowledge of defects cannot recover damages when those defects were factored into the purchase price.

Background and Facts

Black Diamond Financial purchased Lot 25 in Pine Tree subdivision knowing it lacked water rights. The water share had been transferred to Vicki Kincaid in violation of the water company’s bylaws, which required water shares to transfer with the underlying property. Black Diamond sued both the water company and Kincaid, seeking the water rights and damages. The real estate agent had specifically informed Black Diamond that the property came without water, but Black Diamond pursued the purchase anyway, hoping to obtain the property at a lower price and believing it could secure water rights through litigation.

Key Legal Issues

The court addressed three main issues: (1) whether Kincaid qualified as a protected purchaser under Utah Code section 70A-8-303, (2) whether the trial court properly struck Black Diamond’s supplemental damage disclosures as untimely, and (3) whether Black Diamond could recover actual damages despite purchasing with knowledge of the water rights defect.

Court’s Analysis and Holding

The Court of Appeals affirmed on all issues. First, it held that Kincaid was a protected purchaser because her predecessors in interest (prior property owners) had paid assessments and used water for the required period, even though she held a different numbered certificate. The court explained that stock certificates merely evidence ownership interests, like deeds, and new certificates don’t break the chain of title.

Second, the court upheld striking Black Diamond’s supplemental damage disclosures under Rule 26, finding they introduced entirely new damage theories not disclosed during discovery. The court emphasized that vague statements about being harmed don’t satisfy the requirement to disclose specific damage computations.

Most significantly, the court held that Black Diamond suffered no recoverable damages because it purchased with full knowledge that the property lacked water rights, and this defect was reflected in the purchase price. The court refused to classify Black Diamond’s hoped-for windfall from litigation as consequential damages.

Practice Implications

This decision reinforces that Utah courts will not reward property buyers who knowingly purchase defective property at reduced prices and then seek damages for those same defects. For practitioners, the case underscores the critical importance of detailed initial disclosures under Rule 26 and demonstrates that protected purchaser status can extend beyond the immediate certificate holder to include rights established by predecessors in interest.