July 28, 2014

Colorado Court of Appeals: Bank Could Waive Obligations Under C.R.S. § 38-38-106(6) Without Violating Public Policy

The Colorado Court of Appeals issued its opinion in Armed Forces Bank, N.A. v. Hicks on Thursday, June 5, 2014.

CRS § 38-38-306(6)—Waiver—Motion to Amend Answer—Counterclaim—Discovery.

In December 2006, Glenwood Commercial, LLC borrowed $6 million from Bank Midwest to build a condominium complex in Glenwood Springs. The loan was secured by a deed of trust on the property where the complex was to be built. The Hickses, who were principals of Glenwood Commercial, provided separate but identical personal guaranties for the loan. Bank Midwest assigned the loan and guaranties to Armed Forces Bank, which later filed suit against Glenwood Commercial and the Hickses for defaulting under the loan agreement. The district court thereafter granted the bank’s motion for summary judgment against the Hickses.

On appeal, the Hickses contended that the district court erred as a matter of law because the bank’s statutory obligations under CRS § 38-38-106(6) could not be waived, and that, in any event, the Hickses’ guaranty documents do not contain a waiver of the bank’s statutory obligations under CRS § 38-38-106(6). CRS § 38-38-106(6) does not contain a prohibition against waiver, and the ability to waive the provisions of CRS § 38-38-106(6) would not violate public policy. Here, the plain language in the guaranty agreements unambiguously waived all of the Hickses’ defenses against the bank other than actual payment of the debt. Therefore, the Hickses waived their defenses based on CRS § 38-38-106(6) in their guaranty agreements and the district court properly granted summary judgment in the bank’s favor.

The Hickses also contended that the district court erred by denying their motion to amend their answer to assert a counterclaim against the bank. The bank was presented the proposed final plat after the January 1, 2010 deadline had passed and after it had filed suit for breach of the note. Therefore, it had the right to repudiate the modification and forbearance agreements and proceed with its contractual remedies. The district court’s denial of the motion to amend on the basis that the counterclaim as alleged was futile and would not survive a motion to dismiss was not an abuse of discretion.

The Hickses further argued that the district court abused its discretion by denying their motion to compel production of documents requiring the bank to produce documents pursuant to its obligations under CRCP 26(a)(1). However, production of the documents was not required under CRCP 26(a)(1) and the Hickses had not requested such documents under CRCP 34 or by any other discovery mechanism. Thus, the district court did not abuse its discretion in denying the motion to compel. The judgment was affirmed.

Summary and full case available here.

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