July 17, 2019

Colorado Supreme Court: Holder-in-Due-Course Status Does Not Preclude Forgery Defense

The Colorado Supreme Court issued its opinion in Liberty Mortgage Corp. v. Fiscus on Monday, May 16, 2016.

Negotiable Instruments—Holders in Due Course—Forgery—Ratification—Negligent Contribution.

Respondent Fiscus’s wife forged his name on three powers of attorney and used them to procure a promissory note that was ultimately assigned to petitioner Branch Banking and Trust Company. The note was secured by a deed of trust purporting to encumber property held in Fiscus’s name alone. Branch Banking and Trust claimed holder-in-due-course status under Article 3 of Colorado’s Uniform Commercial Code, and Fiscus raised a forgery defense. The Court of Appeals held that Article 3 does not apply to deeds of trust because they are not “negotiable instruments” as defined in the Code. The Supreme Court held that, even assuming Article 3 applies to such deeds of trust, holder-in-due-course status does not preclude a purported maker from asserting a forgery defense. Thus, because Fiscus had a valid forgery defense, not barred by any negligence or ratification on his part, the Court affirmed the judgment of the Court of Appeals but on different grounds. The Court did not address the negotiability of deeds of trust that secure promissory notes under Article 3.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: When Both Parties to Contract Agree to Its Terms, Third Party Has No Standing to Object

The Tenth Circuit Court of Appeals issued its opinion in Security Service Federal Credit Union v. First American Mortgage Funding, LLC on Tuesday, November 4, 2014.

Security Service Federal Credit Union’s predecessor in interest, New Horizons Community Credit Union, entered into a funding service agreement with First American Mortgage Funding, LLC (FAM) and First American Mortgage, Inc. (together, FAM defendants), under which FAM originated 26 mortgage loans to individual borrowers for the purchase and construction of residential properties in Colorado and California. The closing agents performed closing procedures. Security Service (SSFCU) contended that the FAM defendants and closing agents wrongfully induced New Horizons to fund the loans to straw borrowers, and that the loan transactions were a vehicle to misappropriate $14 million in funds. SSFCU brought claims in district court, but FAM objected, contending that SSFCU was not a proper party in interest to pursue the claims. The district court found for FAM and dismissed SSFCU’s claims with prejudice.

The Tenth Circuit found this case easy to resolve, following 6th Circuit precedent in JP Morgan Chase Bank, N.A. v. First Am. Title Ins. Co., 750 F.3d 573 (6th Cir. 2014). When both parties to a contract agree to its terms, a third party cannot object. Here, both New Horizons and SSFCU entered into a Purchase and Assumption Agreement, where SSFCU had all rights to pursue claims on behalf of New Horizons. FAM, as a third party, had no right to object to SSFCU’s standing. The district court’s dismissal was reversed.