Cache Nat. Bank v. Lusher

• Decision Date: 17 October 1994
• Docket Number: No. 93SC334,93SC334
• Citation: 882 P.2d 952
• Parties: CACHE NATIONAL BANK, a National Banking Association, Petitioner, v. Marjorie LUSHER, Respondent.
• Court: Colorado Supreme Court

Page 952

882 P.2d 952

CACHE NATIONAL BANK, a National Banking Association, Petitioner, v. Marjorie LUSHER, Respondent.

No. 93SC334.

Supreme Court of Colorado En Banc.

Oct. 17, 1994.

Karowsky, Witwer, Miller & Oldenburg, John J. Barry, Greeley, for petitioner.

Robert C. Burroughs, Ault, for respondent.

Justice LOHR delivered the Opinion of the Court.

In an action brought by Cache National Bank (CNB) against Marjorie Lusher to quiet title to an undivided one-half interest in certain real property, the Colorado Court of Appeals reversed the trial court's entry of summary judgment in favor of CNB and directed entry of judgment in favor of Lusher. Cache Nat'l Bank v. Lusher, No. 92CA0077 (Colo.App. March 18, 1993) (not selected for official publication). Lusher asserted title through foreclosure of a deed of trust senior to the deed of trust that was the source of CNB's claim. The Lusher deed of trust secured obligations of co-makers of a promissory note. The issue presented for our determination is the effect of the running of the statute of limitations as to the personal liability of one co-maker of that promissory note on the validity of the lien of the deed of trust on that co-maker's undivided one-half interest in the property encumbered by the lien. We hold that because each maker encumbered his or her interest in the property to secure not only his or her own individual obligations on the note but also the obligations of the other co-maker, the lien on the property remained in effect on each co-maker's interest notwithstanding the extinguishment of one co-maker's personal liability on the note. We base this holding on the language of section 38-39-207, 16A C.R.S. (1993), concerning extinguishment of liens, and on the terms of the original promissory note and deed of trust. We therefore affirm the judgment of the court of appeals.

I.

The pertinent facts are undisputed. We derive them from the findings of the trial court and from copies of original instruments and other materials submitted to the trial court by the parties in support of their motions for summary judgment.

On March 3, 1980, Shirley Watts and her husband, Larry Watts, executed a promissory note payable to Marjorie Lusher, Larry Watts' mother, to evidence a loan. The note represented Shirley Watts' and Larry Watts' joint and several obligations to repay Lusher $60,700 plus interest on or before March 3, 1982. The note was secured by a first deed of trust on real property owned by Shirley Watts and Larry Watts and located at 2518 West 4th Street in Greeley, Colorado (the Greeley property). Lusher recorded the deed of trust (the Lusher deed of trust) in the records of the Weld County Clerk and Recorder on March 3, 1980.

On October 7, 1981, Shirley Watts and Larry Watts executed a second promissory note (the CNB note) in the principal sum of $65,822.64 payable to CNB. This note was also secured by a deed of trust encumbering the Greeley property and was payable on demand. CNB recorded its deed of trust (the CNB deed of trust) in the records of the Weld County Clerk and Recorder on October 15, 1981. The lien of the CNB deed of trust, therefore, was junior to the lien of the Lusher deed of trust. See § 38-35-109(1), 16 C.R.S. (1982 Supp.) (recording act).

On March 3, 1982, the note executed in favor of Lusher became due and payable. Neither Larry Watts nor Shirley Watts made any payment on that note. However, on March 3, 1982, Lusher advanced an additional $23,400 to Larry Watts. Larry Watts alone signed a promissory note dated March 3, 1982, evidencing this additional advance and indicating that the note was an "extension of orrigional [sic] note dated March 3, 1980." The note also indicated that the additional advance was secured by the Lusher deed of trust and that the sum of $118,406.60, consisting of principal and interest, would be due on March 3, 1983.

On September 27, 1982, Shirley Watts executed a quit claim deed conveying to Larry Watts all of her interest in the Greeley property. Larry Watts recorded the quit claim deed in the records of the Weld County Clerk and Recorder a day later. On December 23, 1982, the marriage between Larry Watts and Shirley Watts was terminated by a dissolution of marriage decree.

On March 3, 1983, Larry Watts executed the second in a series of four promissory notes extending his obligation to pay the original indebtedness and evidencing additional borrowings by him from Marjorie Lusher. Each extension note was signed by Larry Watts alone, referred to the original promissory note, and indicated that the additional advances were also secured by the Lusher deed of trust. For example, the fourth extension note stated that the amount of $209,256.57 plus interest would be due on March 3, 1990, and that the note was secured by the Lusher deed of trust. Neither Shirley Watts nor Larry Watts made any payments on the original promissory note or any of the extension notes.

Meanwhile, Shirley Watts and Larry Watts defaulted on the CNB note. On July 12, 1983, CNB obtained a decree of foreclosure authorizing a sheriff's sale in foreclosure of its deed of trust on the Greeley property. On February 11, 1991, as the result of a sheriff's sale and the expiration of all periods of redemption, CNB received a sheriff's deed to the property and on that same date recorded the deed in the records of the Weld County Clerk and Recorder. ¹

On September 24, 1990, before the issuance of the sheriff's deed in the CNB foreclosure, Lusher initiated proceedings through the public trustee to foreclose the Lusher deed of trust because Larry Watts had failed to pay the fourth extension note when it became due on March 3, 1990. On March 6, 1991, Lusher received a public trustee's deed for the Greeley property through a public trustee's foreclosure sale and immediately recorded the deed in the records of the Weld County Clerk and Recorder. ²

On February 25, 1991, CNB brought an action in Weld County District Court to quiet title to the undivided one-half interest in the Greeley property formerly owned by Shirley Watts (sometimes referred to as the Shirley Watts interest). CNB alleged that the applicable statute of limitations, section 13-80-103.5, 6A C.R.S. (1987), ³ had run on Lusher's ability to enforce payment by Shirley Watts under the terms of the promissory note executed on March 3, 1980. CNB further alleged that the lien securing Shirley Watts' obligations under the terms of that promissory note had been extinguished as to the Shirley Watts interest pursuant to section 38-39-207, 16A C.R.S. (1993), ⁴ prior to the public trustee's foreclosure, with the result that the public trustee's foreclosure initiated by Lusher was ineffective as to the Shirley Watts interest. Therefore, CNB contended that it was the owner and entitled to possession of the undivided one-half interest in the property formerly owned by Shirley Watts. ⁵

Lusher and CNB each filed a motion for summary judgment. The trial court entered an order granting CNB's motion and denying Lusher's motion. The trial court noted that the statute of limitations applicable to the enforcement of the March 3, 1980, promissory note is section 13-80-103.5, 6A C.R.S. (1987), which prescribes a six year limitations period for commencing an action to enforce the rights in any instrument evidencing a debt. The trial court ruled that because Shirley Watts never executed any extension, modification, or acknowledgment of her obligation under that note, Lusher's ability to pursue an action against Shirley Watts first became time-barred on March 3, 1988, six years after Shirley Watts' obligation on the original March 3, 1980, promissory note matured. The trial court also found that Larry Watts had not assumed Shirley Watts' personal obligation on the note. ⁶ The trial court then reasoned that according to section 38-39-207, 16A C.R.S. (1993), which provides for extinguishment of a lien when the right to enforce the secured obligations is barred by a statute of limitations, the lien of the Lusher deed of trust on the Shirley Watts interest was extinguished on March 3, 1988. This was because the right to enforce payment by Shirley Watts, a right that was secured by the lien, became time-barred on that date. Accordingly, the trial court ruled that CNB, having received a sheriff's deed in foreclosure of its lien on the Greeley property, had acquired title to the Shirley Watts interest free from any interest of Lusher.

Lusher appealed the trial court's judgment to the Colorado Court of Appeals. The court of appeals reversed and directed that judgment be entered "according an undivided one-half interest in the property to Lusher." The court reasoned as follows:

Shirley Watts conveyed any interest she held in the property to Larry Watts prior to the running of the statute of limitations on the original note. Subsequently, acting as the property's sole owner, Larry Watts executed yearly renewal notes to Lusher, and the foreclosure through the public trustee was commenced prior to the expiration of the statute of limitations on the renewal notes. As a result, Lusher commenced timely foreclosure on a valid note executed by the sole owner of the property, Larry, and the public trustees [sic] conveyed all interest in the property to Lusher. We see no basis in this procedure to divest Lusher of the property.

The fact that any claim on the original note was time barred does not affect the validity of Lusher's lien as to the entire interest of the only record owner.

Cache Nat'l Bank v. Lusher, No. 92CA0077, slip op. at 2-3 (Colo.App., March 18, 1993) (not selected for official publication).

CNB sought and we granted certiorari review to determine "[w]hether the court of appeals erred in holding that when one co-maker of a note, which is secured by real property, transfers the property to the other co-maker, the statute of limitations is measured only by the obligation of the...