Gunderson v. Weidner Holdings, LLC

• Decision Date: 26 December 2019
• Docket Number: Court of Appeals No. 18CA2261
• Citation: 463 P.3d 315
• Parties: Jerry GUNDERSON, Plaintiff-Appellee, v. WEIDNER HOLDINGS, LLC and William Weidner, Defendants-Appellants.
• Court: Colorado Court of Appeals

463 P.3d 315

Jerry GUNDERSON, Plaintiff-Appellee,

v.WEIDNER HOLDINGS, LLC and William Weidner, Defendants-Appellants.

Court of Appeals No. 18CA2261

Colorado Court of Appeals, Division VI.

Announced December 26, 2019

Joseph Coleman & Associates, LLC, Joseph Coleman, Isaiah Quigley, Grand Junction, Colorado, for Plaintiff-Appellee

Dackonish & Blake, P.C., Thomas W. Blake, Grand Junction, Colorado, for Defendants-Appellants

Opinion by JUDGE WELLING

¶ 1 This case centers on which statute of limitations applies to two payable-on-demand promissory notes, one of which is secured by a deed of trust on real property. Citing Mortgage Investments Corp. v. Battle Mountain Corp. , 70 P.3d 1176 (Colo. 2003), the district court applied the general six-year statute of limitations, not the one applicable to negotiable instruments under the Uniform Commercial Code (UCC). Based on this, and its conclusion that a claim to enforce a payable-on-demand promissory note accrues when the note is executed, the district court granted summary judgment in favor of plaintiff, Jerry Gunderson. Defendants, William Weidner and Weidner Holdings, LLC, appeal the district court's order for summary judgment. Because we conclude that the UCC applies and that under the UCC's limitations period Weidner Holdings' claim to enforce the promissory notes is not time barred, we reverse the district court's judgment.

I. Background

¶ 2 Jerry Gunderson and his wife, Kimberly Gunderson, asked Kimberly's father, William Weidner, to provide them with money to purchase a home. Through his limited liability company, Weidner Holdings, Mr. Weidner disbursed two lump sums to the couple in order 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, respectively. The promissory notes were explicitly payable on demand and bore a nominal annual interest rate of 0.75 percent. 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.

¶ 3 Later, the Gundersons asked Mr. Weidner to forgive the notes so that they could sell the property encumbered by the larger note and purchase property in Montana. Mr. Weidner declined the request. But he did agree to release the deed of trust on the property the Gundersons were selling and take a subordinated security interest in the Montana property. The Gundersons then moved to Montana. Soon after, the Gundersons separated and began dissolution of marriage proceedings.

¶ 4 After the Gundersons filed for divorce in Montana, Mr. Weidner, on behalf of his limited liability company, called the two notes due against Mr. Gunderson.¹ Mr. Weidner 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. Mr. Gunderson also contended that the statute of limitations barred Mr. Weidner's and his limited liability company's efforts to enforce the notes.

¶ 5 On July 19, 2017, Weidner 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. Weidner Holdings also sought to enforce the promissory notes against Mr. Gunderson. Mr. Gunderson then moved for summary judgment, seeking application of the statute of limitations to preclude enforcement of the notes and to extinguish the deed of trust.

¶ 6 Mr. Gunderson contends the general statute of limitations, section 13-80-103.5, C.R.S. 2019, applies to the notes, while the Weidner defendants contend that the statute of limitations under Colorado's UCC, section 4 - 3-118, C.R.S. 2019, applies to the notes.²

¶ 7 The district court granted Mr. Gunderson's motion for summary judgment, concluding that Colorado's general six-year statute of limitations applied to the notes, that any claim on the notes accrued when they were executed, and therefore that Weidner Holdings' claim for enforcement of the notes is time barred. Mr. Weidner and his limited liability company appeal.

II. Applicable Statute of Limitations

A. Legal Principles

¶ 8 We review an order granting a motion for summary judgment de novo. Salas v. Grancare, Inc. , 22 P.3d 568, 571 (Colo. App. 2001). Summary judgment is only appropriate when there is no genuine issue of material fact. C.R.C.P. 56(e). In reviewing a motion for summary judgment, "the nonmoving party is entitled to any favorable inferences that may reasonably be drawn from the facts, and all doubts must be resolved against the moving party." Clementi v. Nationwide Mut. Fire Ins. Co. , 16 P.3d 223, 225-26 (Colo. 2001).

¶ 9 Which statute of limitations applies is a question of law that we review de novo. Castle Rock Bank v. Team Transit, LLC , 2012 COA 125, ¶ 16, 292 P.3d 1077. A statute of limitations prescribes the time during which an action must be brought. The purposes of statutes of limitation are to promote justice, discourage unnecessary delay, and preclude the prosecution of stale claims. Sulca v. Allstate Ins. Co. , 77 P.3d 897, 899 (Colo. App. 2003). The statute of limitations is an affirmative defense, C.R.C.P. 8(c), that must be pleaded and proved by the defendant. Zertuche v. Montgomery Ward & Co. , 706 P.2d 424, 426 (Colo. App. 1985) ; cf. Drake v. Tyner , 914 P.2d 519, 523 (Colo. App. 1996) (concluding that the defense adequately raised a statute of limitations defense in its summary judgment motion).

B. Analysis

¶ 10 So, which statute of limitations controls a cause of action to enforce the promissory notes? Mr. Gunderson contends (and the district court agreed) that section 13-80-103.5(1)(a), the general statute of limitations applicable to liquidated debts, applies. That section provides:

(1) The following actions shall be commenced within six years after the cause of action accrues and not thereafter:

(a) All actions to recover a liquidated debt or an unliquidated, determinable amount of money due to the person bringing the action, [and] all actions for the enforcement of rights set forth in any instrument securing the payment of or evidencing any debt ....

§ 13-80-103.5.

¶ 11 The Weidner defendants, on the other hand, contend that the two promissory notes are negotiable instruments, and that as payable-on-demand negotiable instruments, an action to enforce them is subject to the limitations period in section 4-3-118, which provides:

[I]f demand for payment is made to the maker of a note payable on demand, an action to enforce the obligation of a party to pay the note must be commenced within six years after the demand. If no demand for payment is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of ten years.

§ 4-3-118(b).

¶ 12 The key, undisputed facts affecting the statute of limitations analysis are:

• The promissory notes were executed on June 19, 2009.

• The promissory notes are payable on demand and payments of principal and interest have never been made.

• Demand for payment wasn't made until March 9, 2017 (just shy of six years and nine months after the promissory notes were executed).

• Suit to enforce the promissory notes was initiated on July 19, 2017 (eight years and one month after the promissory notes were executed).

¶ 13 Based on the undisputed facts, it is uncontested that if section 13-80-103.5(1)(a) applies (and assuming that a claim on a payable-on-demand promissory note accrues when it is executed), then Weidner Holdings' action to enforce the promissory notes is time barred. This is so because demand for payment was not made until more than six years after the promissory notes were executed. See § 13-80-103.5(1)(a). It is also uncontested that if section 4-3-118(b) applies instead, then the Weidner Holdings' action to enforce the promissory notes is not time barred. This is so because demand for payment was made within ten years of the notes being executed and because suit was filed within six years after demand was made. See § 4-3-118(b). Simply put, whether the district court properly granted summary judgment turns on which statute of limitations applies.

¶ 14 To resolve this question, we must first address whether the promissory notes are negotiable instruments. If they are, we must next determine whether securing them with a deed of trust defeats negotiability. Answering both of these questions in favor of negotiability, we then consider whether the supreme court case on which the district court relied — Mortgage Investments Corp. v. Battle Mountain Corp. , 70 P.3d 1176 (Colo. 2003) — controls; we conclude that it does not control the disposition of this case. Based on this analysis, we finally conclude that the UCC's statute of limitations, section 4-3-118(b), governs and that the district court's application of the general statute of limitations, section 13-80-103.5, was erroneous.

1. The Promissory Notes Are Negotiable Instruments

¶ 15 Article 3 of the UCC governs the issuance, transfer, enforcement, and discharge of negotiable instruments. Liberty Mortg. Corp. v. Fiscus , 2016 CO 31, ¶ 13, 379 P.3d 278. Whether a promissory note is a negotiable instrument is a question of law that we review de novo. Cf. Reid v. Pyle , 51 P.3d 1064, 1067 (Colo. App. 2002) (appearing to treat the question of whether a promissory note is a negotiable instrument as a question of law); DBA Enters., Inc. v. Findlay , 923 P.2d 298, 303 (Colo. App. 1996) (same).

¶ 16 Under the UCC, a negotiable instrument is an "unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order" if it:

(1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) Is payable on demand or

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