Opinion ID: 2585689
Heading Depth: 1
Heading Rank: 4

Heading: Debtor and Creditor

Text: We now turn to the issue of whether the parties in this case constitute a debtor and a creditor under the credit agreement statute of frauds. The statute only bars claims filed or maintained by a debtor or creditor. § 38-10-124. Under the statute, a creditor is a financial institution which offers to extend, is asked to extend, or extends credit under a credit agreement with a debtor. § 38-10-124(1)(b). A debtor is defined as a person who or entity which obtains credit or seeks a credit agreement with a creditor or who owes money to a creditor. § 38-10-124(1)(c). The Bank argues that the court of appeals erred in interpreting these definitions as requiring a borrower-lender relationship and in thus holding that third-party lenders do not constitute debtors under the credit agreement statute of frauds. See Morris, 998 P.2d at 41. We agree. The plain language of the statute indicates that a debtor is one who seeks a credit agreement with a creditor. § 38-10-124(1)(c). Since we have determined that the oral representations made by the Bank to Morris constitute a credit agreement, it follows that Morris qualifies as a person seeking such an agreement. Thus, Morris is a debtor under the plain language of the statute. Similarly, the statute requires that a creditor offer to extend credit under a credit agreement with a debtor. § 38-10-124(1)(b). Since we have determined that the Bank's oral representations to Morris constitute a credit agreement, and that Morris is a debtor, it follows that the Bank qualifies as a creditor under the plain language of the statute. A review of the legislative history supports this interpretation. By enacting the statute, the legislature intended to discourage lender liability litigation and to promote certainty into credit agreements involving sums of more than $25,000. Norwest Bank Lakewood, N.A. v. GCC P'ship, 886 P.2d 299, 301 (Colo.Ct.App. 1994). Specifically, by enacting the credit agreement statute of frauds, the legislature hoped to curtail suits against lenders based on oral representations made by members of the credit industry. Representative Kopel, a supporter of the bill, testified during the House Business Affairs Committee Meeting that: It's happened in other states and it's happened because there is some litigation at a very high level for many millions of dollars where someone has claimed that a statement was made to them by the credit industry, whether finance manager of a bank or whatever, and sometimes courts have used that as a basis for determining yes, there was a contract even though nothing was in writing because other individuals went ahead and relied upon that oral representation. Recordings of the House Business Affairs Committee on H.B. 11-16-1989, January 19, 1989, 57th General Assembly. The legislative history also indicates that the statute was intended to be broadly applied. For example, the statute specifically bars claims such as part performance and promissory estoppel. § 38-10-124(3). [3] In discussing the statute's bars to such equitable claims, the general counsel for the Colorado Bankers Association, who sponsored the bill, testified: [Such claims are barred] to make it absolutely certain that there are no exceptions to the statute of frauds as [it applies] to $25,000 ... loan agreements and above from financial institutions. Recordings of the House Business Affairs Committee on H.B. 11-16-1989, January 19, 1989, 57th General Assembly. Thus, the legislative history indicates an intent to impose a broad ban on claims arising from oral representations made by financial institutions. In addition, although the credit agreement statute of frauds has not previously been applied to representations between lenders to the same borrower by courts in Colorado or in other jurisdictions, the case law supports a broad interpretation of the statute. For example, in Colorado, the court of appeals has broadly applied the statute to bar a guarantor's claims arising from an oral settlement agreement discharging his obligations under the original credit agreement. See Pima, 820 P.2d at 1128. The court of appeals has also held that the statute bars not only contractual claims, but also claims in tort arising from an oral credit agreement. See Hewitt v. Pitkin County Bank & Trust Co., 931 P.2d 456, 459 (Colo.Ct.App.1995) (concluding that the language of the statute is not limited by its terms to contract claims or to only those tort claims which seek the enforcement of a credit agreement); Norwest Bank, 886 P.2d at 302 (noting that legislative history confirms the pervasive purpose and scope of the statute). Similarly, courts in other jurisdictions have generally applied such statutes broadly. See, e.g., Cavalier, 5 F.Supp.2d at 718 (holding that tort claims were barred under the Missouri credit statute of frauds); McAloon v. Northwest Bancorp, Inc., 274 Ill.App.3d 758, 211 Ill.Dec. 281, 654 N.E.2d 1091, 1095 (1995) (holding that the Illinois Credit Agreements Act was intended to extend beyond the existing statute of frauds). The Seventh Circuit has considered the application of the Illinois Credit Agreements Act to claims brought by a third-party to an oral agreement. See Whirlpool, 96 F.3d at 216. In Whirlpool, the owner of a Venezuelan corporation with severe cash flow difficulties brought suit against an investor that had reneged on its oral promises to invest $17.5 million into the corporation. Id. at 218. The owner alleged that the investor had falsely represented an intent to invest in the company, causing the owner, in reliance on that promise, to invest $1 million of his own money into the company. Id. at 220. The court did not discuss whether the owner qualified as a debtor under the statute with regard to the investor's promise to invest in the company. Rather, the court concluded that the investor's promise to invest constituted a credit agreement because it included, at least in part, debt financing. Id. at 222. Accordingly, the court held that the Illinois Credit Agreements Act barred the claims arising from the investor's oral promises. Id. at 224. Thus, while no other cases have applied a credit agreement statute of frauds to oral representations made between lenders, at least one case has applied such a statute to bar third-party claims against a financial institution. Finally, public policy considerations support our conclusion that the credit agreement statute of frauds should apply to bar the claims brought in this case, which arose from oral representations made between lenders to the same borrower. A more restrictive reading would effectively provide greater rights to a third-party lender than those afforded to a borrower. That a third-party could bring a suit against a lender for its false assurances to lend money to a borrower who could not himself bring such a suit, is a result that could not have been contemplated by the legislature. Providing rights to third-party lenders greater than those afforded to borrowers would contravene the plain language of the statute and the legislature's intent in enacting the statute. In sum, the plain language of the credit agreement statute of frauds does not limit its application to claims between parties with a direct borrower-lender relationship. Furthermore, the legislative history, the relevant case law, and public policy demonstrate the appropriateness of applying the statute broadly to bar suits based upon all oral promises to lend money, including those made by the Bank in this case. Accordingly, we hold that the court of appeals erred in requiring a direct borrower-lender relationship, and that the terms debtor and creditor require no such relationship under the credit agreement statute of frauds. Therefore, the claims brought by Morris, arising from oral representations made by the Bank, another lender, concerning its extension of credit to a common borrower, were properly barred by the credit agreement statute of frauds.