Cadlerock Joint Venture LP v. Esperanza Architecture & Consulting, Inc.

• Citation: 2021 COA 119,500 P.3d 402
• Decision Date: 02 September 2021
• Docket Number: Court of Appeals No. 20CA0919
• Parties: CADLEROCK JOINT VENTURE LP, Plaintiff-Appellant, v. ESPERANZA ARCHITECTURE & CONSULTING, INC.; Curtis G. Odom; and Angela D. Odom, n/k/a Angela D. McDermott, Defendants-Appellees.
• Court: Court of Appeals of Colorado

500 P.3d 402

2021 COA 119

CADLEROCK JOINT VENTURE LP, Plaintiff-Appellant,

v.ESPERANZA ARCHITECTURE & CONSULTING, INC.; Curtis G. Odom; and Angela D. Odom, n/k/a Angela D. McDermott, Defendants-Appellees.

Court of Appeals No. 20CA0919

Colorado Court of Appeals, Division VII.

Announced September 2, 2021

RoweLaw, LLC, R. William Rowe, Denver, Colorado, for Plaintiff-Appellant

Coan, Payton, & Payne LLC, Brett Payton, Donovan P. Gibbons, Greeley, Colorado, for Defendants-Appellees Esperanza Architecture & Consulting, Inc. and Curtis G. Odom

Clay, Dodson, & Huffman, P.C., Julie Joanne Huffman, Delta, Colorado, for Defendant-Appellee Angela D. McDermott

Opinion by JUSTICE MARTINEZ^*

¶ 1 CadleRock Joint Venture, LP, sued Esperanza Architecture & Consulting, Inc.; Curtis G. Odom; and Angela D. Odom, now known as Angela D. McDermott (collectively, the borrowers) alleging that the borrowers owed it $870,361.21, plus interest and attorney fees and costs, pursuant to a line of credit on which the borrowers had defaulted. The borrowers moved for summary judgment. The district court granted the motion as to all but one of CadleRock's claims. CadleRock appeals the grant of summary judgment. We reverse in part and affirm in part.

I. Background

¶ 2 In 2005, WestStart Bank, a nonparty, issued the borrowers a $500,000 "revolving line of credit" (the Credit Agreement). The following year, the same parties signed a Change of Terms Agreement, which modified the repayment terms in the Credit Agreement and "increase[d] the revolving line of credit from $500,000.00 to $750,000.00." The parties also signed a related Business Loan Agreement.

¶ 3 The borrowers stopped making payments and defaulted in January 2012.

¶ 4 CadleRock asserts that, "[b]y endorsements and allonge(s)," it is the successor in interest to the defaulted line of credit.¹ But it admits that a prior holder of the loan lost the original Credit Agreement.

¶ 5 In 2018, CadleRock sued the borrowers, raising the following claims: "debt due, including for past due and unpaid installment[s]"; breach of contract; quantum mer[u]it; unjust enrichment; promissory estoppel; and "account stated, after October 2, 2017 ...."

¶ 6 In moving for summary judgment, the borrowers asserted that the Credit Agreement was a negotiable instrument governed by article 3 of the Colorado Uniform Commercial Code (UCC). See § 4-3-104(a), C.R.S. 2020 (defining "negotiable instrument"); see also § 4-3-102(a), C.R.S. 2020 (limiting the provisions of UCC article 3 to negotiable instruments). The borrowers therefore alleged that CadleRock was barred from enforcing the defaulted line of credit under several UCC provisions. The borrowers also contended that CadleRock failed to "establish a chain of ownership" showing it "actually bought" the debt. The district court granted the motion for summary judgment in part and denied it in part, dismissing all but CadleRock's breach of contract claim.

¶ 7 CadleRock appealed, and a division of this court issued an order to show cause why the appeal should not be dismissed for lack of a final appealable order. CadleRock then provided an order certifying the partial summary judgment as final pursuant to C.R.C.P. 54(b), and this court allowed the appeal to proceed.

¶ 8 CadleRock now argues the district court erred in (1) finding the Credit Agreement was a negotiable instrument and therefore dismissing CadleRock's past due and unpaid installments claim; (2) concluding the Change of Terms and Business Agreements were "part of" the Credit Agreement; (3) dismissing CadleRock's quantum meruit and unjust enrichment claims; and (4) "decid[ing] that Cadle[Rock] could proceed on a breach of contract claim, after determining that the subsequent agreements were part of the [Credit Agreement] that Cadle[Rock] cannot enforce." CadleRock does not challenge the district court's grant of summary judgment as to its promissory estoppel or account stated claims.

II. Summary Judgment

¶ 9 We review a district court's grant of summary judgment de novo. W. Elk Ranch, L.L.C. v. United States , 65 P.3d 479, 481 (Colo. 2002). Summary judgment is appropriate when the pleadings and supporting documentation demonstrate that no genuine issue of material fact exists and that the moving party is entitled to summary judgment as a matter of law. Martini v. Smith , 42 P.3d 629, 632 (Colo. 2002) ; accord Ryser v. Shelter Mut. Ins. Co. , 2019 COA 88, ¶ 10, 486 P.3d 344, aff'd on other grounds , 2021 CO 11, ¶¶ 10-11, 480 P.3d 1286 ; C.R.C.P. 56(c). The nonmoving party is entitled to the benefit of all favorable inferences reasonably drawn from the undisputed facts, and all doubts as to the existence of a triable issue of fact must be resolved against the moving party. Martini , 42 P.3d at 632.

III. Past Due and Unpaid Installments Claim

¶ 10 CadleRock first contends that the district court erred in concluding the Credit Agreement is governed by the UCC and thereby dismissing CadleRock's past due and unpaid installments claim. CadleRock specifically argues that the UCC does not apply because the Credit Agreement is not a negotiable instrument. We agree.

A. Applicable Law and Standard of Review

¶ 11 "Article 3 of the UCC governs the issuance, transfer, enforcement, and discharge of negotiable instruments." Gunderson v. Weidner Holdings, LLC , 2019 COA 186, ¶ 15, 463 P.3d 315 ; accord Liberty Mortg. Corp. v. Fiscus , 2016 CO 31, ¶ 13, 379 P.3d 278. But, if a written "agreement is not a negotiable instrument, ... the statutory provisions relating to negotiable instruments are inapplicable to the transaction." Reid v. Pyle , 51 P.3d 1064, 1067 (Colo. App. 2002).

¶ 12 A negotiable instrument is (1) "an unconditional promise or order" (2) "to pay a fixed amount of money, with or without interest or other charges described in the promise or order." § 4-3-104(a). To enforce a negotiable instrument, one must be "(i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to section 4-3-309 or [section] 4-3-418(d)[, C.R.S. 2020]." § 4-3-301, C.R.S. 2020.

¶ 13 We review de novo whether a loan document is a negotiable instrument. Gunderson , ¶ 15. We also review de novo the district court's interpretation of contracts and statutes. See Ryser , ¶ 11 ; Ad Two, Inc. v. City & Cnty. of Denver ex rel. Manager of Aviation , 9 P.3d 373, 376 (Colo. 2000).

B. The Credit Agreement is Not a Negotiable Instrument

¶ 14 CadleRock contends the Credit Agreement was not a negotiable instrument because it does not meet the "fixed amount of money" requirement.² See § 4-3-104(a). We agree.

¶ 15 The Credit Agreement specifies that it "covers a revolving line of credit for the principal amount of [$500,000], which will be [the borrowers’] ‘Credit Limit,’ " and that the borrowers may borrow against the line of credit, "repay any portion of the amount borrowed, and re-borrow up to the amount of the Credit Limit." It also states that the borrowers promise to pay "the total of all credit advances and FINANCE CHARGES, together with all costs and for which [the borrowers are] responsible under this Agreement or under the ‘Deed of Trust’ ...."

¶ 16 Relying on this language, the district court found that, while the borrowers could have taken out "any amount up to $500,000.00, the amount they promised to pay was ‘fixed’ or determinable in the sense that it could be easily calculated based on the above language." We don't read the agreement that way.

¶ 17 While we aren't aware of any Colorado decision addressing whether a line of credit may be considered a "fixed amount of money" and neither party points us to any binding authority, other courts have addressed this issue and we find their reasoning persuasive. In Heritage Bank v. Bruha , 283 Neb. 263, 812 N.W.2d 260, 266 (2012), for example, the Nebraska Supreme Court held that a promissory note failed the "fixed amount of money" requirement because the note stated that it "evidence[d] a revolving line of credit" and that the borrower "promise[d] to pay ‘the principal amount ... or so much as may be outstanding ....’ " The court reasoned that, given this language, "one looking at the instrument itself cannot tell how much [the borrower] has been advanced at any given time." Id. at 268 ; accord Yin v. Soc'y Nat'l Bank Ind. , 665 N.E.2d 58, 62 (Ind. Ct. App. 1996) (concluding an agreement for "$2,000,000 ... or so much thereof as may be advanced" was not a negotiable instrument because "the amount advanced to the parties could not be determined with certainty absent an inquiry to other documents"); Cadle Co. v. Allshouse , No. 2023OF2006, 2007 WL 5472749 (Pa. Ct. Com. Pl. Mar. 16, 2006) (finding an agreement was "not for a fixed amount, but rather is a line of credit that permitted [the borrower] to draw advances"), aff'd , 959 A.2d 455 (Pa. Super. Ct. 2008) (unpublished table decision); see OneWest Bank, N.A. v. FMCDH Realty, Inc. , 83 N.Y.S.3d 612, 616-17, 165 A.D.3d 128 (2018) (noting that, in multiple jurisdictions, "line of credit agreements have been held to be distinct from an agreement to pay a sum certain"); see also Farmers Prod. Credit Ass'n v. Arena , 145 Vt. 20, 481 A.2d 1064, 1065 (1984) (holding an agreement allowing "future advances" was not a negotiable instrument).

¶ 18 When a bank advances the borrower the principal at the start of the loan period, and the borrower promises to repay that amount with interest and other costs at intervals outlined in the loan agreement, the loan instrument reveals the amount advanced. But here, the Credit Agreement allows the borrowers to draw on the line of credit, repay the loan, and then re-borrow up to the credit limit. Thus, like in Bruha , instead of promising to repay the principal, the borrowers here promised to pay the "the total of all credit advances." While the Credit Agreement specifies an upper...