The Colorado Court of Appeals issued its opinion in Castle Rock Bank v. Team Transit, LLC on July 19, 2012.
Promissory Notes —Statute of Limitations.
Defendant Michael L. Zinna appealed the trial court’s ruling that plaintiff Castle Rock Bank’s (Bank) action was timely filed under the applicable statute of limitations. The judgment was affirmed and the case was remanded with directions.
On December 18, 1996, the Bank loaned Team Transit, LLC, $100,000 (Team Transit loan), pursuant to a promissory note signed by Zinna, president of Team Transit. Team Transit was required to pay the Bank $1,378 per month beginning one month from December 18, 1996, with “the balance of the principal and interest payable 10 years from the date [t]hereof.”
On April 9, 1998, the Bank loaned Kelly A. Spooner $75,000 (Spooner loan), pursuant to a promissory note signed by her. Spooner was to pay the Bank $1,295 per month beginning one month from April 9, 1998, with “the balance of the principal and interest payable 7 years from the date [t]hereof.”
On March 1, 2001, both loans were modified and new promissory notes were executed by Zinna and Spooner, who had married. The new principal on the Team Transit loan was $75,671.39. Zinna and Spooner were added as co-borrowers in their personal capacities and Spooner pledged additional collateral, consisting of a third deed of trust on their family home. The monthly repayment schedule was revised with a final payment on December 18, 2006. The new principal on the Spooner loan was $48,959.15. Zinna was added as a co-borrower in his personal capacity and the payment terms were revised, with a final payment due on April 9, 2005.
Zinna made two installment payments on both loans in May and July of 2001, and then stopped making payments. The Bank received a “pay-down” of $5,000 from the sale of their home, which it applied to the Team Transit loan on August 2, 2002. The Bank received no further payments, Zinna and Spooner divorced, and Spooner filed for bankruptcy.
On June 5, 2009, the Bank filed its complaint in this action, alleging two claims for breach of contract. On the Team Transit loan, the allegation was against Team Transit and Zinna, and on the Spooner loan, the allegation was against Zinna.
A clerk’s default was entered against Team Transit for failing to answer. Zinna answered and asserted the statute of limitations as an affirmative defense.
The Bank filed a motion for summary judgment, arguing it was entitled to judgment as a matter of law against Zinna for the amount due on the two notes. The Bank represented the Team Transit loan went into “default” on September 20, 1997, and the Spooner loan went into default on January 8, 2002, both for failure to make payments.
Zinna responded, alleging there were questions of material fact and attached an affidavit regarding his understanding that the loans had been paid from various sources. The Bank responded that this was correct but that there still were outstanding balances under both loans. The summary judgment motion was denied based on the dispute about material facts, and a one-day bench trial was held. The court orally denied Zinna’s motion for judgment as a matter of law based on the statute of limitations and ultimately held that Zinna owed $69,108.77 plus interest on the Team Transit loan and $45,036.60 plus interest on the Spooner loan and entered judgment.
Zinna appealed. Shortly before briefing was completed, the Supreme Court issued its opinion in Hassler v. Account Brokers of Larimer County, Inc., 274 P.3d 547 (Colo. 2012), which addressed the specific statute of limitations at issue in this case. Supplemental briefing was requested.
The trial court had found that the Bank had never called the notes in default but had pursued Zinna due to their delinquency. The Court considered what appeared to be an issue of first impression in Colorado: when does the statute of limitations begin to run on a promissory note that is to be repaid in installments; was not accelerated by the creditor; and provides that a “final payment of the unpaid principal balance plus accrued interest is due and payable” on the note’s maturity date?
The Court held that under the circumstances of the case, the statute of limitations didn’t begin to run until then notes’ maturity dates, which were December 18, 2006 for the Team Transit loan and April 9, 2005 for the Spooner loan. Therefore, the Bank timely filed suit. The Court reached this conclusion based on slightly different reasoning than the trial court.
Hasslerset forth the legal framework for evaluating how the statute of limitations applies to an installment payment security agreement that was validly accelerated by the creditor. Based on Hassler, the Court held, as a matter of law, that the Bank did not accelerate the notes when it applied funds to pay them down because it did not express a “clear, unequivocal intent” to do so. Finally, it found the plain meaning of the terms of the notes was that the statute of limitations began running when Zinna was obligated to make a “final payment of the unpaid balance plus accrued interest” on the notes’ respective maturity dates. The Court awarded the Bank its attorney fees in bringing the appeal as permitted under the terms of the notes.
Summary and full case available here.