August 19, 2019

Colorado Court of Appeals: Landowners Who Sold Property Rights Not Allowed to Sever Shares in Mutual Ditch Company from Land in Violation of Previously Existing Conservation Easement

The Colorado Court of Appeals issued its opinion in Mesa County Land Conservancy, Inc. v. Allen on June 7, 2012.

Conservation Easement—Mutual Ditch Shares—Summary Judgment—Injunctive Relief.

In this dispute over a conservation easement encumbering mutual ditch shares, defendants Sam and Susie Allen appealed the trial court’s judgment (1) granting summary judgment in favor of plaintiff Mesa County Land Conservancy, Inc. (Mesa Land Trust); (2) denying the Allens’ motions for summary judgment; and (3) granting injunctive relief in favor of Mesa Land Trust. The judgment was affirmed.

In 1990, the United States, acting by and through the Farmers Home Administration, granted a deed of conservation easement (1990 Easement) to Mesa Land Trust. The conservation easement covered 140 acres of land and provided that “[a]ll water rights held at the date of this conveyance shall remain with this land.” It was recorded in the Mesa County real estate records. At the time of the conveyance, the United States held nine shares of capital stock in a mutual ditch company, the Big Creek Reservoir Company (Big Creek Shares).

The Allens purchased the property in 1993, subject to the 1990 Easement and their deed specifically referred to the Big Creek Shares. In 2007, the Allens sold the property, but purported to exempt the Big Creek Shares from the conveyance. Mesa Land Trust sought declaratory and injunctive relief against the Allens for violating the terms of the 1990 Easement by attempting to sever the Big Creek Shares from the land.

The Allens filed two motions for summary judgment on grounds that the Big Creek Shares were not encumbered by the 1990 Easement because it did not comply with CRS § 38-30.5-104(5) or with article 8 of Colorado’s Uniform Commercial Code (UCC). Mesa Land Trust moved for summary judgment, seeking a declaratory judgment that the Big Creek Shares could not be exempted from the conveyance. The trial court issued a permanent injunction in favor of Mesa Land Trust, requiring the Allens to convey the Big Creek Shares to the purchasers and prohibiting them from severing them from the property. The Allens appealed.

In 2003, the General Assembly amended certain parts of the conservation easement statutes. The Allens argued that the 1990 Easement is invalid because the definition of “conservation easement” in the relevant statute in effect in 1990 did not authorize encumbrance of water rights; and (2) the 1990 Easement does not comply with the notice requirements of the 2003 amendment of CRS § 38-30.5-104(5). Mesa Land Trust argued that the 1990 Easement is valid because the definition of conservation in the statute in effect when the 1990 Easement was created—the 1976 statute—allowed water rights to be encumbered, and if the 2003 amendment to the notice requirement applies retroactively, it is unconstitutionally retrospective.

The Court of Appeals determined that (1) the statutory language was ambiguous before the 2003 amendments; (2) the legislature intended to clarify, and not to change, the statute; and (3) the statute includes a provision that the 2003 amendment applies to previously created conservation easements. Therefore, the Court held that the legislature intended the statute to apply retroactively. It then considered whether it was unconstitutionally retrospective.

Mesa Land Trust contended that the 2003 amendment is unconstitutionally retrospective solely as to the notice requirement because it impairs Mesa Land Trust’s vested rights in the Big Creek Shares. The Allens responded that Mesa Land Trust does not have any vested rights in the Big Creek Shares because the 1976 statute did not recognize conservation easements encumbering water rights as valid interests in land. The Court disagreed with the Allens, finding that the 1976 statute did authorize the creation of conservation easements encumbering water rights (this was clarified by the 2003 amendment).

The Court also agreed with the trial court that application of the 2003 notice requirement to easements that predated the enactment of that requirement would be unconstitutional. If the requirement were imposed, it would render all pre-existing conservation easements covered by that requirement invalid unless, by chance, a grantor complied with a sixty-day notice provision that did not exist when the easement was created.

Finally, the Allens argued that the Big Creek Shares are securities subject to a previous version of the UCC. The Court rejected this argument, finding that it is well established that the UCC does not apply to mutual ditch shares as they are not corporations in a legal sense but merely vehicles for individual ownership of water rights. Accordingly, the trial court’s judgment was affirmed.

Summary and full case available here.

Governor Hickenlooper Signs More Bills, Including Industrial Hemp Bill

In the past few weeks, Governor Hickenlooper has continued his efforts to sign bills into law. So far this legislative session, he has signed 278 bills into law.

Governor Hickenlooper traveled to Ft. Collins on May 22, 2012, to sign the following bill:

  • HB 12-1326Concerning Assistance to the Elderly, and, In Connection Therewith, Making an Appropriation.
    Sponsored by Rep. Cindy Acree and Sen. John Kefalas. The bill encourages the State Board of Health Services to raise the monhly Old Age Pension amount and also allows seniors with partial Medicaid eligibility to receive dental assistance and transfers funds to the Senior Services Account.

Governor Hickenlooper signed 29 bills into law on Thursday, May 24, 2012, including one that encourages Colorado’s use of clean energy alternatives. Five of the bills signed that day are summarized here.

  • HB 12-1315Concerning the Reorganization of the Governor’s Energy Office and, In Connection Therewith, Making an Appropriation.
    Sponsored by Rep. Jon Becker and Sen. Pat Steadman. The bill reorganizes and renames the Governor’s Energy Office and changes its statutory mission. The bill intends to promote clean and renewable energy.
  • HB 12-1346Concerning Sex Offender Registration.
    Sponsored by Rep. Bob Gardner and Sen. Steve King. The bill establishes requirements for sex offender registration for individuals who do not have a fixed residence.
  • HB 12-1328Concerning Exclusion from the “Uniform Commercial Credit Code” of Certain Charges by Persons Regularly Engaged in Making Contracts for Purchase of Tangible Personal Property in the Course of Business if Those Charges Do Not Exceed Amounts Permitted by Law.
    Sponsored by Rep. Kevin Priola and Sen. Angela Giron. The bill clarifies the appication of the pawnbroker exclusion to the UCCC.
  • HB 12-1307Concerning the Authority of a Nonlawyer Trustee of a Certain Size Trust to Represent the Trust Before the Board of Assessment Appeals.
    Sponsored by Rep. Jim Kerr and Sen. Ellen Roberts. The bill authorizes a nonlawyer trustee to represent its trust before the Board of Assessment Appeals if the total size if the trust is less than $3 million.
  • SB 12-009Concerning the Consolidation of Cash Funds Administered by the Division of Water Resources, and, In Connection Therewith, Making and Reducing Appropriations.
    Sponsored by Sen. Mary Hodge and Rep. Keith Swerdfeger. The bill creates the water resources cash fund, as recommended by the Water Resources Review Committee, and consolidates it into six branches.

On Tuesday, May 29, 2012, Governor Hickenlooper signed 14 bills into law. Four of them are summarized here.

  • SB 12-078Concerning Protections for At-Risk Adults.
    Sponsored by Sen. Evie Hudak and Rep. Sue Schafer. The bill clarifies definitions and modifies requirements regarding the mistreatment, self-neglect, and exploitation of at-risk adults.
  • HB 12-1237Concerning the Records Kept by Unit Owners’ Association of a Common Interest Community.
    Sponsored by Rep. Angela Williams and Sen. Ted Harvey. The bill identifies a list of the records required to be kept by a unit owners’ association for a common interest community.
  • HB 12-1263Concerning Reducing Barriers to Employment by State of Colorado Agencies for People with Criminal Records.
    Sponsored by Rep. Claire Levy and Sen. Pat Steadman. The bill prohibits state agencies from advertising in employment solicitations that people with criminal backgrounds may not apply, and prevents agencies from doing background checks unless a conditional offer has been given.
  • HB 12-1293Concerning Modifications to Procedures that Govern Recall Elections.
    Sponsored by Rep. Nancy Todd and Sen. Keith King. The bill makes various changes and clarifications to the rules governing recall elections.

On Wednesday, May 30, 2012, Governor Hickenlooper signed one bill into law.

  • HB 12-1278Concerning the Authorization of a Study of the South Platte River Alluvial Aquifer, and, In Connection Therewith, Making an Appropriation.
    Sponsored by Rep. Randy Fischer and Sen. Scott Renfroe. The bill requires the CWCB in connection with the State Engineer and the Colorado Water Institute to conduct a study to compile historical hydrological data for the South Platte River Basin.

Finally, on Monday, June 4, 2012, Governor Hickenlooper signed 17 bills into law. Four of them are summarized here.

  • HB 12-1261Concerning Effective Educators in Low-Performing, High-Needs Schools, and, In Connection Therewith, Making an Appropriation.
    Sponsored by Rep. Judy Solano and Sen. Bob Bacon. The bill requires that teachers and principals holding certification from the National Board for Professional Teaching Standards be awarded a stipend.
  • SB 12-068Concerning Prohibiting the Inclusion of Industrially Produced Trans Fats in Foods Made Available to Students by Public Schools, and, In Connection Therewith, Making an Appropriation.
    Sponsored by Sen. Lucia Guzman and Rep. Tom Massey. The bill prohibits public schools from making available foods or beverages that contain industrially produced trans fats. The bill requires districts with 1,000 or more students to comply and encourages districts with fewer than 1,000 students to comply.
  • HB 12-1099Concerning the Establishment of an Industrial Hemp Remediation Pilot Program to Study Phytoremediation Through the Growth of Hemp on Contaminated Soil, and, In Connection Therewith, Making an Appropriation.
    Sponsored by Rep. Wes McKinley and Sens. Lois Tochtrop and Suzanne Williams. The bill allows the Industrial Hemp Remediation Pilot Program to study how contaminated soils and water can be purified by the growth of industrial hemp.
  • HB 12-1314Concerning an Exception to the Requirement to File an Oil and Gas Severance Tax Return for a Person Who Has Less Than a Certain Amount Withheld, and, In Connection Therewith, Making an Appropriation.
    Sponsored by Rep. Jerry Sonnenberg and Sen. Cheri Jahn. The bill creates an exception from filing oil and gas severance tax returns and prohibits the DOR from sending non-filing taxpayers notices of liability unless certain requirements are met.

For a complete list of Governor Hickenlooper’s 2012 legislative decisions, please click here.

Several More Groups of Bills Signed Into Law by Governor Hickenlooper

As the legislature winds down, Governor Hickenlooper continues to sign bills into law. So far this legislative session, Governor Hickenlooper has signed 191 bills into law.

On Thursday, April 26, the governor signed ten bills into law. Four of those are summarized here.

  • HB 12-1236Concerning the Regulation of Charitable Solicitations, and, in Connection Therewith, Making an Appropriation
    Sponsored by Rep. Ken Summers and Sen. Cheri Jahn. The bill makes several changes to the regulation of charitable solicitations.
  • HB 12-1126 Concerning On-Site Wastewater Treatment Systems
    Sponsored by Rep. Cheri Gerou. The bill updates statutes related to the regulation of on-site wastewater treatment systems.
  • HB 12-1313 Concerning Procedures Related to the Statewide Initiative Title Board
    Sponsored by Rep. Libby Szabo and Sen. Bob Bacon. The bill makes several changes to the procedures of the statewide initiative Title Board.
  • HB 12-1209 Concerning the “Uniform Electronic Legal Material Act”
    Sponsored by Rep. Bob Gardner and Sen. Morgan Carroll. The bill establishes procedures for the publication and authentication of certain legal material, including the Colorado Revised Statutes, session laws, constitution, and Code of Colorado Regulations.

Governor Hickenlooper signed 19 bills into law on Thursday, May 3, 2012, including several from the Joint Budget Committee. Four of the bills signed on May 3 are summarized here.

  • HB 12-1258Concerning Regulation of Public Utilities in Terms of Alternative Fuel Vehicles
    Sponsored by Rep. Brian DelGrosso and Sen. Cheri Jahn. The bill requires public utilities to make reasonable efforts to provide service connection for fueling of alternative fuel vehicles.
  • SB 12-158Concerning the Consolidation of Two Public Housing Agencies Within the Division of Housing in the Department of Local Affairs
    Sponsored by Sen. Betty Boyd and Rep. Laura Bradford. The bill clarifies that the Division of Housing is the sole public housing authority for providing financial housing assistance, and shifts the Homeless Prevention Activities Program to the Division of Housing.
  • HB 12-1340Concerning a Reduction in the General Fund Portion of the Per Diem Rates Paid to Nursing Facilities, and, In Connection Therewith, Reducing an Appropriation
    Sponsored by Rep. Jon Becker and Sen. Kent Lambert. The bill reduces the per diem rates paid to skilled nursing facilities by 1.5 for Fiscal Year 2012-13 only.
  • SB 12-110Concerning a Fund Consisting of Surcharges on Insurance Premiums to Pay for Costs Associated with Criminal Prosecution of Insurance Fraud Investigations, and, in Connection Therewith, Making an Appropriation
    Sponsored by Sen. Pat Steadman and Rep. Claire Levy. The bill changes the amount of fees paid to the state by insurance companies to a two-tier schedule set by the Commissioner of Insurance.

On Monday, May 7, Governor Hickenlooper signed the budget bill for the next fiscal year. The bill was approved by an overwhelming majority of legislators – it received 86 yes votes and only 8 no votes. Governor Hickenlooper lauded the legislature for approving the bill with such an impressive majority. The “long bill,” HB 12-1335, contains separate links to the budgets for all state agencies, including add-ons for some agencies.

Governor Hickenlooper signed seven more bills into law on Wednesday, May 9, 2012. Three of them are summarized here.

  • SB 12-012Concerning the Department of Revenue’s Audits of Automobile Emissions Inspection Facilities
    Sponsored by Sen. Steve King and Rep. Joe Miklosi. The bill decreases the frequency of overt audits of vehicle emission inspection facilities and increases the frequency of covert audits.
  • SB 12-060Concerning Improving Medicaid Fraud Prosecution
    Sponsored by Sen. Ellen Roberts. The bill requries reporting by certain state agencies for the legislature’s use the following year in order to evaluate Medicaid fraud.
  • HB 12-1262Concerning Enactment of Amendments to the Secured Transactions Provisions of the “Uniform Commercial Code”
    Sponsored by Rep. Bob Gardner and Sen. Ellen Roberts. The bill adopts changes to the Uniform Commercial Code as recommended by the Colorado Commission on Uniform Laws.

A complete list of legislation signed by Governor Hickenlooper in 2012 is available here.

Colorado Court of Appeals: Cattle Who Were “Produced In” Oklahoma and Shipped to Colorado From Missouri Were Considered Securities

The Colorado Court of Appeals issued its opinion in Great Plains National Bank, N.A. v. Mount on April 12, 2012.

Summary Judgment—Food Security Act—Security Interests in Cattle—Uniform Commercial Code.

In this consolidated appeal, defendants Jamie Mount and Cattle Consultants, LLC appealed the district court’s summary judgment in favor of plaintiff Great Plains National Bank, N.A. (Great Plains) on their separate motions for summary judgment. The judgment was affirmed.

This consolidated case involved two disputes. Mount claimed under the Food Security Act of 1985 (FSA) that he purchased 206 head of cattle free of a security interest claimed by Great Plains. Cattle Consultants and Great Plains each claimed a superior security interest in the 206 head of cattle.

In October 2009, Fred Smith obtained a loan from Great Plains and granted a security interest covering “[a]ll cattle” that he owned at the time or would acquire in the future. On November 19, 2009, Great Plains filed a Uniform Commercial Code (UCC) financing statement with the Oklahoma Secretary of State’s office reflecting this interest. Great Plains also filed an effective financing statement (EFS) in Oklahoma, as required by the FSA, on December 17, 2009.

On February 15, 2010, Mount agreed to purchase 206 head of cattle from Smith. That same day, Cattle Consultants financed Mount’s purchase, and Mount granted Cattle Consultants a security interest in the 206 head of cattle. Cattle Consultants filed a UCC financing statement with the Colorado Secretary of State on March 8, 2010.

Mount believed he was buying 206 head of cattle located in Oklahoma, but Smith actually fulfilled the purchase with cattle he had just bought on February 14, 2010 from a broker in Missouri. On February 18, 2010, Smith received a shipment of 231 head of cattle from the Missouri cattle broker. The next day, he loaded 206 of them onto trucks bound for Colorado. Mount paid for the shipping.

Smith paid the Missouri cattle broker with a check with insufficient funds, but Great Plains covered it. Great Plains couldn’t recoup the money from Smith. In April 2010, Great Plains sought to enforce its security interest in the 206 head of cattle purchased by Mount and filed a UCC financing statement against Smith in Colorado.

All parties moved for summary judgment, and the district court ruled in favor of Great Plains. The court concluded that the cattle were “produced in” Oklahoma, such that under the FSA, Mount’s purchase was subject to Great Plains’ financing statement filed in that state. The court further found that Cattle Consultants’ security interest in the cattle was junior to Great Plains’ security interest. Mount and Cattle Consultants appealed.

Mount argued the trial court misinterpreted the phrase “produced in” under the FSA. The Court had to determine whether Mount’s cattle were “produced in” Oklahoma. If so, they were subject to Great Plains’ security interest. If not, they were free and clear of that security interest. Under the FSA, buyers of farm products generally take free of a security interest created by the seller; however, there is an exception under 7 U.S.C. § 1631(e) that applies where (1) the farm product was produced in a state that has a central filing system; (2) the buyer has failed to register with that state’s secretary of state; and (3) the secured party has filed an effective financing statement covering the farm products being sold.

Mount challenged the district court finding that the cattle were produced in Oklahoma, arguing they were produced in Missouri, which has no central filing system. The phrase “produced in” is undefined in the FSA and no case law was found in this regard. The Court of Appeals therefore looked to the plain and ordinary meaning of the phrase, which it found ambiguous and, as a consequence, turned to legislative history. It noted that Mount’s argument could result in buyers purchasing farm products subject to security interests they had no practical method of discovering (Mount himself believed he was buying cattle from Oklahoma). Based on the purposes of the FSA as stated in its legislative history, the Court held that “produced in” means the location where farm products are furnished or made available for commerce. Therefore, it affirmed the district court’s decision that Mount purchased the cattle subject to the perfected security interest claimed by Great Plains.

Cattle Consultants argued it had a senior security interest in Great Plains because Mount, not Smith, owned the cattle when they entered Oklahoma; therefore, Great Plains did not have a security interest in them and its purchase money security interest (PMSI) had priority over any competing security interest. The Court disagreed. Under the UCC, a security interest is enforceable against a debtor and third parties with respect to the collateral when (1) value is given; (2) the debtor has rights in the collateral; and (3) the debtor has signed a security agreement that provides a description of the collateral. Here, it was undisputed that Great Plains gave value to Smith; Smith had an ownership interest in the cattle; and Smith gave Great Plains a security agreement with an interest in all cattle owned or later acquired.

The Court also disagreed that the PMSI had priority. Great Plains filed its financing statement on November 19, 2009. This filing was done before Smith acquired rights in the cattle and thus was perfected at the moment of attachment. Cattle Consultants did not file their financing statement until March 2010. Great Plains was the first to file, and therefore had priority.

Summary and full case available here.

HB 12-1262: Enacting Amendments to Article 9 of the Uniform Commercial Code, Regarding Secured Transactions, that Were Adopted in 2010 by NCCUSL

On February 7, 2012, Rep. Bob Gardner and Sen. Ellen Roberts introduced HB 12-1262 – Concerning Enactment of Amendments to the Secured Transactions Provisions of the “Uniform Commercial Code.” This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The CBA LPC has voted to support this bill.

Colorado Commission on Uniform State Laws

The bill enacts amendments to article 9, regarding secured transactions, of the “Uniform Commercial Code,” that were adopted in 2010 by the national conference of commissioners on uniform state laws. Article 9 provides the rules governing any transaction that couples a debt with a creditor’s interest in a debtor’s personal property. If the debtor defaults, the creditor may repossess and sell the property to satisfy the debt.

The creditor’s interest is called a “security interest.” The 2010 amendments to article 9 modify the existing statutes to respond to filing issues and other matters.

The bill provides greater guidance as to the name of a debtor to be provided on a financing statement. For business entities and other registered organizations, the amendments clarify that the proper name for perfection purposes is the name filed with the state and provided on the organization’s charter or other constitutive documents, to the extent there is a conflict with the name on an entity database. In particular, the bill adopts a “safe harbor” rule by leaving intact the requirement that the financing statement use the debtor’s “individual name”, but specifying that the name on the driver’s license will also be sufficient as well as the debtor’s surname and first personal name.

A number of related changes were also made. For example, the 2010 amendments clarify that a change in the name used on a debtor’s driver’s license or the expiration of the driver’s license may qualify as a name change. With respect to trusts, if collateral is held by a statutory trust or in a Massachusetts-type business trust, the trust is a registered organization and the trust’s name is the debtor name. For common law trusts that are not Massachusetts-type business trusts, the financing statement must provide the name of the trust as identified in the trust’s organic records if it has name indicated there, or otherwise the name of the settlor or testator and sufficient additional information to distinguish a particular trust from others held by that same settlor or testator.

The amendments also deal with perfection issues arising on after-acquired property when a debtor moves to a new jurisdiction. Article 9 currently provides that perfection by filing continues for 4 months after the jurisdiction in which the debtor is located changes. However, this temporary period of perfection applies only with respect to collateral owned by the debtor at the time of the change. Even if the security interest attaches to after-acquired collateral, there is currently no perfection with respect to such new collateral unless and until the secured party perfects pursuant to the law of the new jurisdiction. The amendments change this by giving the filer perfection for 4 months in collateral acquired post-move. A similar change is made with respect to a new debtor that is a successor by merger. The new rule provides for temporary perfection in collateral owned by the successor before the merger or collateral acquired by the successor within 4 months after the merger.

Existing law authorizes the debtor to file a correction statement: A claim that a financing statement filed against it was in fact unauthorized. While this filing has no legal effect on the underlying claim, it does put in the public record the debtor’s claim that the financing statement was wrongfully filed. The amendments change this in 2 ways. First, the filing is no longer called a “correction statement,” but is instead referred to as an “information statement”. Second, the amendments authorize the secured party of record to also file an information statement if the secured party believes that an amendment to its financing statement was not authorized. The change addresses concerns of secured parties that an amendment to a different financing statement may be inadvertently filed on the secured party’s financing statement because the amendment contains an error when referring to the file number of the financing statement to be amended.

A number of additional technical amendments are also included in the bill. For example, some extraneous information currently provided on financing statements will no longer be required. A safe harbor for the transfer of chattel paper in conformance with the “Uniform Electronic Transactions Act” is included, and the bill clarifies that the broader override of contractual restrictions found in existing law applies with respect to enforcement of a security interest through the sale or strict foreclosure of payment intangibles and promissory notes. Certificates of title for goods are clarified where the certificates of title are, in whole or in part, in electronic form, and greater guidance is given with respect to the notice requirements applicable to electronic dispositions of collateral (specifically, time and “electronic location” of online auctions) when a security interest is enforced by sale or other disposition of the collateral.

The bill has a uniform effective date of July 1, 2013, so as to allow states to adopt the amendments uniformly and have them become operative simultaneously, thereby avoiding unnecessary conflicts and confusion with respect to interstate transactions. The House adopted the bill on March 5; the Senate Judiciary Committee will hear the bill on Tuesday, March 20 Upon Adjournment.

Since this summary, the bill was referred unamended from the Senate Judiciary Committee to the Senate Committee of the Whole.

Summaries of other featured bills can be found here.

Colorado Court of Appeals: Person Entitled to Enforce Promissory Note Need Not Be the Holder; Law of Agency Supplements the UCC

The Colorado Court of Appeals issued its opinion in Citywide Banks. v. Armijo on October 13, 2011.

Uniform Commercial Code—Foreclosure—Agency

Plaintiff Citywide Banks (Bank) appealed the order denying its motion for sale of the property owned by defendant. The order was affirmed.

In 2003, Dakota Lending, LLC (Dakota) executed a promissory note to Bank in exchange for a revolving line of credit that allowed Dakota to borrow up to $4 million. Dakota used this line of credit to finance its business of buying, selling, and holding real estate mortgages. As security, Bank took assignments of the promissory notes and deeds of trust that Dakota financed or acquired in its course of business.

In 2007, Kimberly Poladsky and RE Services, LLC (collectively, RE Services) executed a promissory note (Note) payable to Jaguar Mortgage Company. The Note was secured by a deed of trust that encumbered the property at issue. After a series of transfers, Dakota acquired the Note. Dakota then assigned all of its rights and interest in the Note and deed of trust to Bank. While Bank held the Note, it allowed Dakota to service the loan and retain for itself periodic payments made on the Note.

In 2008, RE Services sold the property to defendant. Title insurance was purchased from Stewart Title, which conducted the closing. At closing, defendant tendered the purchase price and Stewart Title accepted those funds as closing agent. Stewart Title did not demand production of the Note at closing and did not attempt to determine the identity of the Note holder. Bank alleged that Stewart Title also failed to obtain a release of the deed of trust at closing. Stewart Title issued a check payable to Dakota for the amount listed on the payoff statement, but Dakota never tendered the funds to Bank. Dakota is now defunct and its managers are under criminal indictment. Bank, which still holds the Note, has declared it in default.

Bank brought this action to foreclose its lien on the property based on the unpaid Note balance. The trial court determined that Dakota was Bank’s agent and had authority to receive the payoff of the Note and, therefore, Bank was not entitled to foreclose on the property.

On appeal, Bank argued that Colorado’s Uniform Commercial Code (UCC) establishes that Bank’s lien remains enforceable against the property because any payoff made to Dakota was ineffective. The Court of Appeals disagreed. Bank argued that UCC § 4-3-301 required payment to be made to the Note holder. The Court found that the section does not contain an explicit requirement that a “person entitled to enforce” an instrument must be the holder. UCC § 4-1-103 provides that the common law, including the law of agency, supplements the statutory provisions of the UCC. Under Colorado’s common law, payment to a holder’s authorized agent is equivalent to payment to the holder. The Court held that payment to a holder’s agent is equivalent to payment to the holder.

Bank also argued that it was error to find that Dakota was its agent. The Court disagreed, holding that the trial court’s finding was amply supported by the record.

Bank further contended that it was error to find that Dakota was authorized to accept payoff of the Note. The trial court found that Dakota had apparent authority to accept payoff of the Note. The Court upheld the ruling, but found that the facts established Dakota’s implied authority to accept a payoff.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on October 13, 2011, can be found here.

Colorado Court of Appeals: Trial Court Erred by Allowing Amendment of Pleadings after Trial to Include Claim of Breach of Implied Warranties under the UCC

The Colorado Court of Appeals issued its opinion in Maehal Enterprises, Inc. v. Thunder Mountain Custom Cycles, Inc. on July 7, 2011.

Automobile—Manufacturer—Dealer —Amendment of Pleadings—CRS § 12-6-120(1)(d)—Damages.

Defendant Thunder Mountain Custom Cycles, Inc. (TMCC) appealed and Pikes Peak Harley-Davidson (PPHD) cross-appealed various aspects of the trial court’s judgment on PPHD’s claims of (1) violation of statutes regulating automobile dealers; (2) breach of contract; and (3) negligent misrepresentation. The judgment was affirmed in part and reversed in part, and the case was remanded.

This case arises from the parties’ agreement allowing plaintiff Maehal Enterprises, Inc., doing business as PPHD, to act as a dealer of motorcycles manufactured by TMCC. After the State Department of Revenue Auto Industry Division informed PPHD that it was not authorized to sell TMCC’s motorcycles, PPHD brought suit, and the case ultimately proceeded to a bench trial.

TMCC contended that, because the parties did not intentionally and actually try a claim under the Uniform Commercial Code (UCC), the trial court abused its discretion when it permitted PPHD to amend the pleadings after trial to include a claim of breach of implied warranties under the UCC. PPHD did not plead a breach of implied warranties claim under the UCC. It also confirmed before trial that it was not asserting any implied warranties claims. Additionally, neither party mentioned the UCC nor adduced any testimony discussing implied warranties under the UCC at trial. Accordingly, the court abused its discretion by allowing the amendment and entering judgment on the amended claim.

PPHD contended that the trial court erroneously concluded that TMCC did not violate CRS § 12-6-120(1)(d), which makes it unlawful for a manufacturer to cancel a dealer franchise agreement by nonrenewal without just cause. However, there was record support for the trial court’s finding that the one-year dealer contact had been terminated by mutual agreement of the parties. Accordingly, the trial court did not err in its conclusion that there was just cause for nonrenewal of the dealer contract. Thus, TMCC did not violate § 12-6-120(1)(d).

PPHD also contended that the trial court erroneously determined that it was not entitled to recover for its loss or damage caused by TMCC’s and its owner’s violation of the relevant statutes that make it unlawful for a manufacturer to own a motor vehicle dealer. Although the treble damages provision of §12-6-122(2) does not apply to a violation of the independent control of dealer provision, PPHD could recover for its loss or damage caused by TMCC’s and its owner’s violation of the independent control of dealer provision pursuant to §12-6-122(3).

PPHD further contended that the trial court erred in concluding that TMCC was not obligated to repurchase its motorcycles and parts following termination of the dealer contract. Because the franchise agreement expired more than twelve months after PPHD took possession of the motorcycles, TMCC was under no obligation to repurchase the motorcycles. The case was remanded, however, to permit the trial court to consider PPHD’s claim for reimbursement of parts, which is not constrained by the same twelve-month period.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on July 7, 2011, can be found here.

Colorado Court of Appeals: Trial Court Erred by Characterizing a Waiver Defense as a Renunciation Defense

The Colorado Court of Appeals issued its opinion in Glover, Personal Representative of the Estate of Noren v. Innis on March 3, 2011.

Summary Judgment—Uniform Commercial Code—Defenses of Renunciation and Waiver.

Defendants Norma Innis, Richard Innis, and their son Dain Innis appealed the trial court’s summary judgment in favor of plaintiff, the personal representative of the Estate of Juel Noren (decedent). The judgment was reversed and the case was remanded for further proceedings.

Defendants and decedent, with his wife who predeceased him, owned adjacent residential property in Mesa County. The Norens divided their time between Colorado and Nevada. Defendants contended that they and the Norens become friends and that they looked after the Norens’ property when they were in Nevada. Sometime after the death of Mrs. Noren, decedent and defendants had an attorney draft a promissory note payable by defendants to decedent in the principal amount of $250,000, with a related agreement and warranty deed conveying decedent’s Mesa County property (property). The draft agreement recited decedent had sold his property to himself and Dain and Norma Innis as joint tenants in consideration for the note.

The note and agreement were signed by defendants in November 2003 and sent with the unsigned warranty deed to decedent in Nevada. A year and a half later, decedent signed the agreement and deed and retained the note. The note required defendants to pay the $250,000 in monthly installments commencing January 1, 2007. Decedent died before any payments were due, and defendants never made any payments. Defendants claimed decedent never accepted the note, waived payment under it, and repeatedly expressed his intent to give them the property.

Plaintiff filed this action. The trial court denied plaintiff’s motion for summary judgment that the transaction was illusory, but granted partial summary judgment on the note with interest. The trial court then held a bench trial on breach of a provision in the agreement establishing a bank account and for an accounting. The trial court found in defendants’ favor. Defendants moved for post-trial relief to reduce the amount of prejudgment interest under the note, which the trial court denied.

On appeal, defendants argued it was error to characterize their waiver defense as a renunciation defense under CRS § 4-3-604 and then to reject it. The Court of Appeals agreed.

Defendants pleaded waiver as a defense, and the trial court observed “[w]hat Defendants call a waiver is more commonly called a renunciation.” The trial court held there was no evidence that decedent had renounced his rights under the note and therefore granted plaintiff’s motion for partial summary judgment.

The Court agreed that decedent did not renounce his rights to collect under the note for purposes of § 4-3-604 of the Uniform Commercial Code (UCC). However, § 4-3-601(a) permits the obligation of a party to pay under an instrument to be discharged under the UCC or by any act or agreement that would discharge an obligation to pay under a simple contract.

The defense of waiver, pleaded by defendants, arises when a party to a contract is entitled to assert a particular right, knows the right to exist, and intentionally abandons that right. Waiver may be implied by a party’s conduct. Therefore, the trial court erred by failing to consider defendants’ waiver defense independent of renunciation. The partial summary judgment was reversed and the case was remanded.

This summary is published here courtesy of The Colorado Lawyer. Other summaries by the Colorado Court of Appeals on March 3, 2011, can be found here.