Gunderson v. Weidner Holdings, LLC, 463 P.3d 315 (Colo. App. 2019)
Article courtesy of David Simonds and Edward McNeilly (both of Hogan Lovells)
In Gunderson v. Weidner Holdings, LLC, the Colorado Court of Appeals, the intermediate appellate court of the state of Colorado, held that the Uniform Commercial Code’s statute of limitations, not the general statute of limitations under Colorado law, applied to a claim to enforce two promissory notes, one of which was secured by a deed of trust, and thus lender’s claim for enforcement was not time-barred.
Jerry Gunderson and his wife, Kimberly Gunderson, asked Kimberly’s father, William Weidner, to provide them with money to purchase a home. Mr. Weidner, through his company Weidner Holdings, LLC (“Holdings”), provided two lump sums to the couple to fund the real estate purchase. On June 19, 2009, the Gundersons executed two promissory notes in the amounts of $739,000 and $150,000. The promissory notes were payable on demand and bore a nominal annual interest rate of 0.75%. The $739,000 note was secured by a deed of trust; the $150,000 note was unsecured. The promissory notes did not require any periodic payments of interest or principal and the Gundersons made none.
After the Gundersons filed for divorce, Mr. Weidner, on behalf of Holdings, called the two notes against Mr. Gunderson. He demanded payment on March 9, 2017, almost eight years after the notes were executed. After Mr. Weidner demanded repayment, Mr. Gunderson sued in Colorado district court, seeking a declaratory judgment that the money was a gift, never to be repaid. He also contended that the statute of limitations barred Holdings’ efforts to enforce the notes. Holdings asserted counterclaims, seeking a declaratory judgment that the disbursed funds were loans and not gifts and that its enforcement action was not time barred.
Mr. Gunderson moved for summary judgment, seeking application of Colorado’s general six-year statute of limitations to preclude enforcement of the notes and to extinguish the deed of trust. Because the general statute bars enforcement of liquidated debt claims more than six years after an instrument evidencing a liquidated debt executed, if the general statute applied, Mr. Gunderson would have a valid defense. Holdings, in response, asserted that the promissory notes were negotiable instruments under UCC Article 3, and thus a separate limitations period under section 4-3-118(b) of the Colorado Revised Statutes applied. This statute provides for a limitations period to commence an action on a payable-on-demand negotiable instrument of six years after a demand has been made. If no demand for payment is made, an action to enforce the note is time barred if neither principal nor interest on the note has been paid for a continuous period of ten years. Because Holdings filed suit within six years of making a demand and within ten years after the notes were executed, the suit would not be time barred if section 4-3-118(b) applied. Mr. Gunderson prevailed on summary judgment because the district court interpreted a prior decision of the Colorado Supreme Court, Mortgage Investments Corp. v. Battle Mountain Corp., 70 P.3d 1176 (Colo. 2003) (“Battle Mountain”), to require application of the general statute of limitations. Holdings appealed.
First, the Colorado Court of Appeals determined that the promissory notes were negotiable instruments under Colorado’s version of UCC Article 3 because they (i) contained plain language describing an unconditional promise to pay a fixed amount of money with interest, (ii) were payable to order at the time they were issued (the statute requires payment to bearer or to order), (iii) were payable on demand (the statute requires payment on demand or at a definite time) and (iv) did not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money.
Next, the Colorado Court of Appeals held that securing a promissory note with a deed of trust does not defeat the negotiability of the promissory note. The Colorado Court of Appeals dismissed Mr. Gunderson’s argument that the conditions of the deed of trust constituted “further undertakings,” rendering the larger of the two promissory notes (which was secured by a deed of trust) non-negotiable. Any additional conditions were solely required by the deed of trust and were not incorporated into the promissory note.
Finally, the Colorado Court of Appeals distinguished the Colorado Supreme Court’s decision in Battle Mountain, upon which the district court had relied. In Battle Mountain, the underlying claim was foreclosure on a deed of trust. Eight years before filing the foreclosure action giving rise to Battle Mountain, the lender sued the borrower for default on a promissory note, and instead of immediately foreclosing on the property, simply obtained a judgment. The lender waited eight years to institute the foreclosure action. At issue in Battle Mountain was whether the general six-year statute of limitations barred foreclosure on a lien of a deed of trust or if the fifteen-year limitations period applicable to deeds of trust governed foreclosure actions so long as the action to reduce the promissory note to judgment was timely pursued. In granting summary judgment to Mr. Gunderson, the district court had seized on language in Battle Mountain that stated “the six-year statute of limitations…is a general statute of limitations on the enforcement of debts, including those evidenced by a promissory note secured by a deed of trust.” However, the Colorado Court of Appeals held that the district court erred in applying Battle Mountain. First, the court in Battle Mountain was not presented with the issue of what statute of limitations applied to the claim to enforce the promissory note, which case had been resolved eight years earlier. Second, the question of whether the promissory note at issue was a negotiable instrument was not raised in Battle Mountain.
The Colorado Court of Appeals thus held that the specific UCC statute of limitations applied to the promissory notes and Weidner’s claims to enforce the notes were not time barred. The Court reversed the district court’s summary judgment order and remanded for further proceedings. However, the Court expressly refused to address any other potential defense to enforcement of the notes or deed of trust, including that they were a gift, and directed the district court to address such defenses on remand.