Fisher v. Cmty. Banks of Colo., Inc.
| Decision Date | 07 October 2010 |
| Docket Number | No. 09CA0162.,09CA0162. |
| Citation | 300 P.3d 565 |
| Parties | Yale A. FISHER, Plaintiff–Appellant, v. COMMUNITY BANKS OF COLORADO, INC., Defendant–Appellee. |
| Court | Colorado Court of Appeals |
OPINION TEXT STARTS HERE
Polsinelli Shughart, PC, Bennett L. Cohen, Philip W. Bledsoe, Denver, Colorado, for Plaintiff–Appellant.
Moye White LLP, James R. Miller, Paul R. Wood, Jake E. Matter, Thomas H. Wagner, Denver, Colorado, for Defendant–Appellee.
Opinion by Judge CONNELLY.
Plaintiff, Yale A. Fisher (borrower), appeals from a judgment entered after a jury trial in a lender liability case brought against defendant, Community Banks of Colorado, Inc. (bank). The jury, following legal and evidentiary rulings adverse to borrower, rejected borrower's claims and found in favor of bank on a counterclaim.
The most significant appellate issues involve Colorado's Credit Agreement Act, § 38–10–124, C.R.S.2009. The so-called statute of frauds in that Act is an expansive one: it not only operates like a typical statute of frauds to require that covered credit agreements be in writing, but also severely limits the evidence and claims allowable in actions relating to such written agreements. We hold, however, that the Act does not limit extrinsic evidence to resolve facially ambiguous credit agreements. We further hold that the agreement here was ambiguous because it contained inconsistent provisions regarding the interest due upon borrower's default.
We accordingly reverse and remand for a new trial on borrower's claims against bank. We also reverse the counterclaim judgment against borrower because bank unequivocally assigned that claim to a third party.
Bank loaned borrower some $3.4 million to build a luxury home in Cherry Hills Village. As security, borrower executed deeds of trust to that land and to his Telluride vacation home.
The loan was modified and extended three times, through documents entitled “CHANGE IN TERMS AGREEMENT.” Each change agreement contained a “DESCRIPTION OF CHANGE IN TERMS” paragraph that listed changed terms and ended by stating, “All other terms and conditions remain the same.”
The second change agreement is the one that spawned the later dispute leading to this litigation. The paragraph describing the changed terms extended the loan term by three months and altered the standard interest rate to two percent over prime with a six percent floor. It ended by stating, “All other terms and conditions remain the same.” Several paragraphs later, however, this agreement purported to make an additional change. It stated that bank, “at its option, may, if permitted under applicable law, increase the variable interest rate on this Agreement to 36.000% per annum.”
After a third change agreement extending the loan term and changing the standard interest rate to a fixed six percent, borrower defaulted on the loan. Bank, using the standard six percent interest rate, demanded that borrower repay the then $3.5 million principal plus some $180,000 in accrued interest and penalties. Bank ultimately initiated foreclosure proceedings.
Bank sold the loan to Western Real Estate Equities, LLC. It told Western there was a special thirty-six percent default interest rate. After purchasing the loan, Western demanded that borrower repay the $3.5 million principal together with more than $2 million in interest calculated at this higher rate.
Bank provided Western with an affidavit stating, inaccurately, that the thirty-six percent rate had been “heavily negotiated.” Borrower and Western reached a settlement whereby borrower paid some $4.5 million under the note and relinquished any claims against Western but not against bank.
Borrower then sued bank in this state court action. Though he asserted a variety of causes of action, his present appeal involves only contract-based and fraud claims.
Borrower contended that bank breached the contract and committed fraud regarding the default interest rate. He maintained the parties never intended a thirty-six percent interest rate, and he also challenged other aspects of the bank's post-default actions. Bank counterclaimed that borrower had fraudulently induced it to make the loan.
The case proceeded to a jury trial. The trial court ruled as a matter of law that the change agreements established a default interest rate of thirty-six percent. It excluded much of borrower's proposed evidence of prior and contemporaneous statements suggesting the parties did not intend this rate, ruling that this evidence was barred by Colorado's Credit Agreement Act. And it instructed the jury that borrower had read the agreements and understood that there was a thirty-six percent default interest rate.
The trial court's rulings precluded borrower from establishing his fraud and misrepresentation claims. Borrower dismissed those claims. The case went to the jury on borrower's civil conspiracy claim and his contract-based claims alleging that bank had violated principles of good faith and fair dealing. Bank's fraudulent inducement counterclaim also went to the jury.
The jury ruled in bank's favor on borrower's claim and on the fraudulent inducement counterclaim; it awarded bank $96,680 in damages. After adding statutory interest, the court entered judgment against borrower for some $136,000.
Borrower contends that the trial court was incorrect in ruling that (1) the loan agreements unambiguously set a thirty-six percent default interest rate and (2) the Credit Agreement Act precluded evidence that the parties never intended that rate. We review both contentions de novo. See East Ridge of Fort Collins, LLC v. Larimer & Weld Irrigation Co., 109 P.3d 969, 974 (Colo.2005) (ambiguity of contract); Wolf Ranch, LLC v. City of Colorado Springs, 220 P.3d 559, 563 (Colo.2009) (statutory interpretation).
Ambiguity is established where “the clauses of a contract conflict.” People v. Johnson, 618 P.2d 262, 266 (Colo.1980); accord Bennett v. Price, 692 P.2d 1138, 1139 (Colo.App.1984). That is precisely the case here.
The original loan agreement and three change agreements, which incorporated each other, must be construed together. See Premier Farm Credit, PCA v. W–Cattle, LLC, 155 P.3d 504, 517 (Colo.App.2006). There was no thirty-six percent default interest rate in the original agreement or first change agreement. Bank contends the second change agreement changed the default interest rate to thirty-six percent. This contention, however, contradicts the second change agreement's paragraph that expressly detailed the changes from prior agreements, made no mention of any increased default interest rate, and stated that “[a]ll other terms and conditions remain[ed] the same.”
There was no separate default interest rate provision in the original loan agreement. The first change agreement added a default interest paragraph stating that, upon default, the sum due would bear interest “at the variable interest rate of this Agreement.” Though this new paragraph was not mentioned in the description of changes paragraph, it did not effectuate any operational change because the rate was set at the note rate. The standard interest rate ultimately was established, in the third change agreement, as a fixed six percent.
The special default interest rate, of thirty-six percent, first appeared in the second change agreement. The paragraph setting this special rate came several paragraphs after the description of changes paragraph referencing a specific change, making no mention of a special default rate, and stating that “[a]ll other terms and conditions remain the same.”
The second change agreement contains irreconcilable provisions regarding a default interest rate. One paragraph states that there is no change to prior agreements other than as set forth in the paragraph. But, contrary to this paragraph, a later paragraph purports to change the default interest rate. The second change agreement thus is internally contradictory and ambiguous on whether the default interest rate was changed.
We reject bank's contention that ambiguity in the second change agreement somehow vanishes as a result of the third change agreement. Bank contends that because a thirty-six percent rate was established in the second change agreement, the third change agreement accurately stated that there were no other changes from prior agreements. But this begs the issue of whether the rate was ever validly changed to thirty-six percent.
The general rule is that “[w]hen the clauses of a contract conflict, it is proper to receive extrinsic evidence to resolve the ambiguity by ascertaining the intent of the parties.” Johnson, 618 P.2d at 266 (citing Ryan v. Fitzpatrick Drilling Co., 139 Colo. 471, 342 P.2d 1040 (1959)). Extrinsic evidence is that “surrounding the formation of the contract,” such as any “oral negotiations.” Dorman v. Petrol Aspen, Inc., 914 P.2d 909, 912 (Colo.1996). The ultimate meaning of an ambiguous provision is a question of fact. Id.
The trial court ruled the Credit Agreement Act precluded borrower's evidence that the parties never intended a thirty-six percent rate. The excluded evidence included (1) a handwritten statement on an official loan committee document that all prior terms and conditions (other than a slight change to the standard interest rate) “remain unchanged” by the second change agreement, (2) a bank official's deposition testimony that this statement was meant to signal “the only change” intended, and (3) evidence that the thirty-six percent default rate was inserted automatically by new bank software without the loan officer's knowledge.
The trial court's exclusionary rulings...
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