k v. Esperanza Architecture

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
September 2, 2021
2021COA119
No. 20CA0919, CadleRock v Esperanza Architecture — Uniform
Commercial Code — Negotiable Instruments
A division of the court of appeals considers whether a line of
credit is a negotiable instrument under section 4-3-104(a), C.R.S.
2020. The division concludes that a line of credit is not a
negotiable instrument because it fails the “fixed amount of money”
requirement. Id. The division further concludes that, because
article 3 of the Colorado Uniform Commercial Code applies only to
negotiable instruments, article 3 does not bar a plaintiff from
enforcing a defaulted line of credit. Accordingly, the division
reverses the district court’s grant of summary judgment on
plaintiff’s claim of past due and unpaid installments.
The division also (1) reverses the portion of the summary
judgment dismissing plaintiff’s quantum meruit and unjust
enrichment claims because plaintiff sufficiently established a
genuine issue of material fact; (2) affirms the unchallenged portions
of the summary judgment; and (3) declines to consider plaintiff’s
breach of contract claim because it is not before the division.
COLORADO COURT OF APPEALS 2021COA119
Court of Appeals No. 20CA0919
Garfield County District Court No. 19CV30022
Honorable Denise K. Lynch, Judge
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.
JUDGMENT AFFIRMED IN PART
AND REVERSED IN PART
Division VII
Opinion by JUSTICE MARTINEZ*
Fox and Pawar, JJ., concur
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
*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2020.
¶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.
1
¶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
1 According to CadleRock, U.S. Bank National Association (US
Bank) acquired WestStar and gained possession of the defaulted
line of credit. US Bank then assigned the debt to Acquired Capital
who subsequently assigned it to CadleRock.
2
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.
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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, aff’d on other grounds, 2021 CO 11, ¶¶ 10-11;
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.
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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; accord Liberty
Mortg. Corp. v. Fiscus, 2016 CO 31, ¶ 13. 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;
5
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’ . . . .”
2The district court largely limited its analysis to the Credit
Agreement but applied the UCC to all three agreements after
concluding the Credit Agreement “[wa]s modified but not
superseded by” the Change in Terms and Business Loan
Agreements.
6
¶ 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, 812 N.W.2d 260, 266 (Neb.
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
7
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 (App.
Div. 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, 481
A.2d 1064, 1065 (Vt. 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
8
borrowers here promised to pay the “the total of all credit
advances.” While the Credit Agreement specifies an upper limit to
the total amount advanced, it allowed the borrowers to draw less
than the limit or to draw more than the limit over the course of the
loan by repaying and re-borrowing. As a result, the amount the
borrowers promised to pay could fluctuate significantly over the
course of the loan. This means that, without knowing the total
advanced, the amount the borrowers promised to pay cannot be
determined from the Credit Agreement. Thus, the Credit Agreement
does not reflect a promise or order to pay a “fixed amount” and is
not a negotiable instrument.
¶ 19 Because UCC article 3 only governs negotiable instruments,
see Reid, 51 P.3d at 1067, CadleRock is not barred from enforcing
the Credit Agreement under any article 3 provisions. For this
reason, we reverse the district court’s grant of summary judgment
as to CadleRock’s past due and unpaid installments claim.
IV. Interpreting Together the Credit, Change of Terms, and
Business Loan Agreements
¶ 20 Next, CadleRock argues the district court erred in finding that
the Credit Agreement was “modified but not superseded by” the
9
Change of Terms and Business Loan Agreements. Interpreting the
court’s language as integrating the three agreements, CadleRock
states “the major import” of this ruling is that CadleRock is
“forestalled” from enforcing the defaulted line of credit under
section 4-3-309 because the original Credit Agreement “was lost by
its predecessor-in-interest.”
¶ 21 To the extent CadleRock raises this issue as a means of
challenging the district court’s determination that it was barred
from enforcing the defaulted line of credit under article 3, we need
not address it in light of our determination that UCC article 3
doesn’t govern the enforcement of the Credit Agreement. See
Valentine v. Mountain States Mut. Cas. Co., 252 P.3d 1182, 1193
(Colo. App. 2011). Put another way, CadleRock isn’t barred from
enforcing the defaulted line of credit because it lacks the original
document for the Credit Agreement, so irrespective of whether the
three agreements are integrated or not, CadleRock may move
forward with its claim.
¶ 22 Assuming instead that CadleRock argues the district court
erred in concluding the Credit Agreement incorporates the Change
of Terms and Business Loan Agreements, we can’t review that claim
10
because the court did not make specific findings about whether the
three agreements are integrated. Thus, should the district court
determine on remand that it must address whether the three
agreements are integrated, the court should make additional
findings on this matter.
V. Quantum Meruit and Unjust Enrichment Claims
¶ 23 CadleRock next argues that the district court erred in granting
summary judgment on its quantum meruit and unjust enrichment
claims. We agree.
¶ 24 Quantum meruit, also termed quasi-contract or unjust
enrichment, is an equitable doctrine that “seeks to restore fairness
when a contract fails.” Dudding v. Norton Frickey & Assocs., 11
P.3d 441, 444-45 (Colo. 2000). The doctrine serves to “gaug[e] the
equities and ensur[e] that the party receiving the benefit of the
bargain pays a reasonable sum for that benefit.” Id. at 445. To
recover under a claim of quantum meruit or unjust enrichment,
a plaintiff must show (1) that a benefit was
conferred on the defendant by the plaintiff, (2)
that the benefit was appreciated by the
defendant, and (3) that the benefit was
accepted by the defendant under such
circumstances that it would be inequitable for
it to be retained without payment of its value.
11
Cablevision of Breckenridge, Inc. v. Tannhauser Condo. Ass’n, 649
P.2d 1093, 1096-97 (Colo. 1982).
¶ 25 In dismissing CadleRock’s quantum meruit and unjust
enrichment claims on summary judgment, the district court found
that CadleRock “failed to demonstrate that [the borrowers] received
a benefit at [CadleRock’s] expense” and offered no response to the
borrowers’ contention that CadleRock “had an opportunity to
conduct due diligence prior to purchasing the loans from Acquired
Capital, and therefore knew or should have known the risk
associated with the debt.”
¶ 26 But at the summary judgment stage, the burden was on the
borrowers, not CadleRock, to demonstrate that there was no
disputed issue of fact, and CadleRock was entitled to the benefit of
all favorable inferences. See Martini, 42 P.3d at 632. The
determination of whether CadleRock conferred a benefit on the
borrowers hinges on whether CadleRock is properly the
successor-in-interest to WestStar. As the district court otherwise
found in denying summary judgment as to CadleRock’s breach of
contract claim, “giving [CadleRock] the benefit of all favorable
inferences, . . . [CadleRock] has presented sufficient evidence to
12
establish a genuine issue of material fact as to whether the debt at
issue in this case was assigned to [it].”
¶ 27 Thus, because we agree that CadleRock has established a
genuine issue of material fact as to whether it was assigned the
defaulted line of credit, we conclude there was likewise a genuine
issue of material fact as to whether CadleRock conferred a benefit
on the borrowers. For this reason, we reverse the district court’s
grant of summary judgment as to CadleRock’s quantum meruit and
unjust enrichment claims.
VI. Breach of Contract Claim
¶ 28 Finally, CadleRock appears to argue that the district court
erred in denying the borrowers’ summary judgment motion as to
CadleRock’s breach of contract claim. CadleRock’s point may be
that the district court, in ruling CadleRock was barred from
enforcing the three agreements under section 4-3-309, stripped
CadleRock’s breach of contract claim of any hope of success and
effectively granted summary judgment on this claim. Regardless,
the court’s denial of summary judgment is not reviewable as it is
not a final order. Thus, we do not address it, other than to the
extent it is affected by our conclusion that section 4-3-309 does not
13
apply. Bd. of Cnty. Comm’rs v. BDS Int’l, LLC., 159 P.3d 773, 783
(Colo. App. 2006) (declining to review the district court’s summary
judgment denial and noting that, while a court may certify a partial
grant of summary judgment as a final appealable order, the district
court retains jurisdiction to rule on those claims not certified as
final appealable orders).
VII. Conclusion
¶ 29 We reverse the district court’s award of summary judgment to
the borrowers on CadleRock’s claims for past due and unpaid
installments on a promissory note, quantum meruit, and unjust
enrichment. Because CadleRock does not appeal the district
court’s award of summary judgment on its promissory estoppel and
account stated claims, we do not disturb the district court’s ruling
on those claims. Finally, we do not reach CadleRock’s breach of
contract claim because it is not properly before us.
JUDGE FOX and JUDGE PAWAR concur.
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