Court Opinion

ID: 4024837
Source: CourtListenerOpinion
Date Created: 2016-08-15 22:03:33.3172+00
Date Added: 2024-06-11T14:04:26.945119
License: Public Domain

1                Opinions of the Colorado Supreme Court are available to the
2            public and can be accessed through the Judicial Branch’s homepage at
3              http://www.courts.state.co.us. Opinions are also posted on the
4              Colorado Bar Association’s homepage at http://www.cobar.org.
5
6                                                            ADVANCE SHEET HEADNOTE
7                                                                          June 20, 2016
8
9                                           2016 CO 45
0
1   No. 13SC768, Hutchins v. La Plata Mountain Res., Inc.—Limitations of Actions—
2   Acknowledgments of Existing Debt—Form and Essential Elements of
3   Acknowledgements.
4
5          Hutchins and Gasper petitioned for review of the court of appeals’ judgment

6   affirming the district court’s ruling in favor of La Plata, in an action brought by La Plata

7   to collect on certain debentures issued by Leadville Mining and foreclose on a deed of

8   trust securing the debts. Although Leadville’s authorized agent had signed documents

9   acknowledging its obligations for the amounts owed on other similar debentures held

0   by Hutchins and Gasper, which were secured by the same deed of trust, the court of

1   appeals reasoned that because these documents lacked the two-thirds consent required

2   for modification of the debentures, the included acknowledgments were insufficient to

3   restart the applicable limitations period. The court of appeals therefore concluded, as

4   had the district court, that the statute of limitations had run on any action by Hutchins

5   and Gasper to collect on the debts or foreclose on the deed of trust.

6          The supreme court reversed the judgment of the court of appeals, holding that

7   because the documents in question were in writing, were signed by Leadville, and

8   contained a clear and unqualified acknowledgement of the debt owed to Hutchins and
1   Gasper, they constituted a new promise to pay, establishing a new accrual date and

2   effectively extending the limitations period on collection of the debt, whether or not the

3   documents in question also successfully modified the terms of the debentures.

4

5

6
1
2

3                       The Supreme Court of the State of Colorado
4                            2 East 14th Avenue • Denver, Colorado 80203

5                                            2016 CO 45

6                               Supreme Court Case No. 13SC768
7                             Certiorari to the Colorado Court of Appeals
8                               Court of Appeals Case No. 11CA156

9                                            Petitioners:
0                               Scot B. Hutchins and John H. Gasper,
1                                                 v.
2                                           Respondent:
3                            La Plata Mountain Resources, Incorporated.

4                                       Judgment Reversed
5                                               en banc
6                                            June 20, 2016

7   John H. Gasper, pro se
8     Fishers, Indiana
9
0   Attorneys for Petitioner Scot B. Hutchins:
1   Davis Graham & Stubbs LLP
2   Andrew M. Low
3   Kyle W. Brenton
4    Denver, Colorado
5
6   Attorneys for Respondent:
7   Gordon & Rees LLP
8   John R. Mann
9     Denver, Colorado
0
1
2
3
4   JUSTICE COATS delivered the Opinion of the Court.
5   JUSTICE HOOD dissents, and JUSTICE MÁRQUEZ and JUSTICE GABRIEL join in
6   the dissent.
¶1     Hutchins and Gasper petitioned for review of the court of appeals’ judgment

affirming the district court’s ruling in favor of La Plata, in an action brought by La Plata

to collect on certain debentures issued by Leadville Mining and foreclose on a deed of

trust securing the debts. Although Leadville’s authorized agent had signed documents

acknowledging its obligations for the amounts owed on other similar debentures held

by Hutchins and Gasper, which were secured by the same deed of trust, the court of

appeals reasoned that because these documents lacked the two-thirds consent required

for modification of the debentures, the acknowledgments included in them did not have

the effect of extending the due date of the Hutchins and Gasper debentures, and

therefore did not restart the limitations period for collection of the respective debts. The

court of appeals therefore concluded, as had the district court, that the applicable

statute of limitations had run on any action by Hutchins and Gasper to collect on the

debts or foreclose on the deed of trust, leaving La Plata as the sole secured creditor.

¶2     Because the documents in question were in writing, were signed by Leadville,

and contained a clear and unqualified acknowledgement of the debt owed to Hutchins

and Gasper, they constituted a new promise to pay, establishing a new accrual date and

effectively extending the limitations period on collection of the debt, according to the

statutes and case law of this jurisdiction, whether or not the documents in question also

successfully modified the terms of the debentures.        The judgment of the court of

appeals is therefore reversed.

                                             2
                                            I.

¶3     In 2003, La Plata Mountain Resources, Inc., brought actions against Leadville

Mining Corporation, Scot Hutchins, John Gasper, and other holders of debt

instruments, denominated “debentures,”1 issued by Leadville, seeking to collect on

those debentures held by La Plata and to foreclose on a deed of trust, which secured all

of Leadville’s outstanding debentures. La Plata also sought a determination that only it

among the holders of the remaining outstanding debentures secured by the same deed

of trust had filed within the applicable statute of limitations, and therefore that only it

among the outstanding debenture holders had a secured position.             Hutchins and

Gasper held interest in other of the debentures secured by the same deed of trust.

¶4     The district court held a three-day bench trial, resulting in lengthy, undisputed

factual findings.   As relevant here, the district court found that Leadville owned

hundreds of mining properties in Lake and Park Counties. In 1987, in an effort to

obtain $3.3 million of operating cash, Leadville created fifteen convertible debentures

secured by a single deed of trust encumbering the bulk of Leadville’s properties. While

the amount owed on each debenture varied according to the sum loaned by each

investor, the debentures were otherwise identical. By the time of trial, some debentures

had been converted to stock or released, but seven remained outstanding.               The

debentures were originally scheduled to mature and pay in full, with interest, on

1A “debenture” is at times taken to refer to an unsecured debt. See, e.g., Black’s Law
Dictionary 486 (10th ed. 2014) (“A debt secured only by the debtor’s earning power, not
by a lien on any specific asset.”). Because the debt instruments at issue here are self-
designated as “debentures,” and that terminology is used by the parties and lower
courts, we continue to use it.

                                            3
October 31, 1989. On several occasions, the holders gave consent to extend the maturity

dates of the debentures, ultimately until December 31, 1997.

¶5     At the time of trial, the parties each held some interest in the outstanding

debentures. In 2002, as a form of compensation, several debenture holders transferred

partial interests in five of the debentures to Hutchins, a retired attorney who had served

as CEO of Leadville, and Gasper, a mining engineer who had served as President of

Leadville. Around the same time, La Plata, which the district court concluded, “was

formed for the sole purpose of acquiring and enforcing the 1987 debentures,” acquired

interest in three of the debentures.

¶6     In late 2003, Hutchins and Gasper were facing what the parties agreed was a

six-year statutory bar to sue on the debt under the 1997 due date. According to the

testimony at trial and trial exhibits, Hutchins was still working with Leadville to re-

open the mines and worried that a suit to collect would jeopardize Leadville’s

refinancing efforts and lead to bankruptcy proceedings. Hutchins therefore retained

counsel to draft documents to be executed by Leadville and the other debenture holders

to postpone their deadline to sue. Aside from the particulars related to each holder, all

of the documents were identical. The 2003 documents acknowledged the debt and

purported to extend the maturity dates of the debentures and waive any defenses to

collection that might otherwise be available to Leadville. While a number of debenture

holders, including Hutchins and Gasper, signed the documents executed by Leadville,

La Plata did not.

                                            4
¶7    It was not disputed that La Plata’s action on the debt, which it filed in early 2003,

fell within the limitations period. The primary issue litigated at trial was therefore

whether the 2003 documents extended the limitations period for the other debenture

holders, and the arguments focused on a term in the original debentures requiring for

their modification the “consent of the holders of 66-2/3% in aggregate principal amount

of the outstanding debentures.”2      Hutchins and Gasper contended that the term

“principal amount” referred to the instrument’s original stated amount to be repaid at

maturity and therefore that Hutchins and the other consenting debenture holders

collectively held more than 66 2/3% of the aggregate stated principal amount. By

contrast, the district court interpreted the consent provision to require that the 66 2/3%

be calculated based on the principal amount that remained unpaid at the time the

holders were asked to agree to the proposed 2003 extension. Finding that some of the

debentures had been converted to stock and were therefore no longer a debt owed by

Leadville, the district court found that the signers of the 2003 documents did not meet

the required percentage of outstanding debentures required for their modification.

¶8    The district court did not explicitly address the argument raised in the written

submissions of Hutchins and Gasper to the effect that the 2003 documents separately

contained a written and signed acknowledgment of the debt, and instead it simply

ruled that as the result of the documents’ failure to successfully modify the debentures,

2It appears well-established, and was uncontested, that tolling the statute of limitations
on the debt also tolls the statute of limitations for foreclosure on the deed. See W.Q.F.,
Annotation, Part Payment or Acknowledgment of Indebtedness on Bond or Note as
Tolling Statute on Mortgage Securing Same, 41 A.L.R. 822 (1926); Du Bois v. First Nat’l
Bank, 96 P. 169, 171 (Colo. 1908).

                                            5
the limitations period ran in 2003, leaving La Plata as the only holder of debentures

secured by the deed of trust on Leadville’s assets. On appeal Hutchins and Gasper

renewed their assertion that the acknowledgments included in the 2003 documents

themselves effectively restarted the limitations period. Although the court of appeals

similarly focused on the two-thirds consent requirement and similarly found the 2003

documents invalid for failure to satisfy the requirements for modification of the

debentures, it cursorily rejected the claim of extension by written acknowledgement of

the debt, stating that the 2003 documents failed to extend the limitations period under

that theory because they were not “solely” an acknowledgment of the debt, but were an

unsuccessful attempt to modify the debentures.

¶9    Hutchins and Gasper petitioned this court to review the court of appeals’

rejection of its claim of extension of the due date by written acknowledgment.

                                           II.

¶10   A cause of action to collect a debt accrues when the debt becomes due.

§ 13-80-108(4), C.R.S. (2015). Since early common law, it has been universally accepted

that a new promise to pay effectively removes the bar of any applicable statute of

limitations by creating a new debt, with a new due date; and that a partial payment

constitutes an implicit promise to pay. See Van Diest v. Towle, 179 P.2d 984, 987 (Colo.

1947) (recounting in detail the history of the doctrine). The question precisely what

circumstances an acknowledgment of a debt, other than by partial payment, would

constitute an implicit promise to pay sufficient to create a new debt, with a new due

date, had been the subject of debate and development over many years; however, at

                                           6
least by the time of Van Diest, this jurisdiction had come to align itself with what the

Restatement (Second) of Contracts now refers to as the “modern rule”―that an

acknowledgment is effective to extend the running of the statute of limitations, as long

as it fairly implies a new promise. § 82, cmt. c (1981).

¶11    While the acknowledgement of the debt must be clear, to avoid “piling

implication upon implication,” Van Diest, 179 P.2d at 988, and unqualified, in the

absence of “accompanying circumstances, which repel the presumption of a promise or

intention to pay,” id., such an acknowledgment of indebtedness is sufficient to

constitute the requisite new promise, id.; see also Restatement (Second) of Contracts

§ 82(2) (“The following facts operate as such a promise unless other facts indicate a

different intention: (a) A voluntary acknowledgment to the obligee, admitting the

present existence of the antecedent indebtedness . . . .”). In addition, for nearly a

century, by statute in this jurisdiction, an acknowledgement or promise must be in

writing and signed by the promisor “to take a case out of the operation of the statute of

limitations.” § 13-80-113, C.R.S. (2015). That an implicit promise to pay, either in the

form of a partial payment, see, e.g., Hickerson v. Vessels, 2014 CO 2, ¶ 19, 316 P.3d 620,

625, or an acknowledgment meeting these conditions, see, e.g., Drake v. Tyner, 914 P.2d
519, 522 (Colo. App. 1996), will extend the statute of limitations has remained, largely

unquestioned, the law of this jurisdiction.

¶12    Further, because the theoretical basis for this proposition, or doctrine, is that the

“new promise is sufficiently supported by the consideration of the past debt,” Van

Diest, 179 P.2d at 989, such a promise need not appear as an enforceable agreement to

                                              7
be effective in extending the limitations period.     Quite the contrary, although for

evidentiary purposes it must be in writing and signed, to the extent the

acknowledgment, or new promise to pay, were made conditional upon the fulfillment

of some additional requirement or a promise in exchange for which it was given, it

would fail the requirement that it be unqualified or unequivocal. It is generally held

that an implicit promise to pay only upon the fulfillment of some condition can become

an unqualified promise to pay creating a new debt, with a new due date, only upon the

fulfillment of that condition. See Restatement (Second) of Contracts § 91. At that point,

the implicit promise would no longer be qualified.

¶13   Notwithstanding La Plata’s contention to the contrary, by stating that

“[Leadville] hereby acknowledges and agrees that the Current Holders . . . are the

holders of the Debenture” and “[Leadville] hereby confirms and reaffirms that the

Debenture (a) remains issued and outstanding . . . and (d) is secured by the Modified

Deed of Trust,” the 2003 documents contain a clear and unqualified acknowledgment of

Leadville’s indebtedness. In the absence of any expression of unwillingness or even

conditional willingness to pay, Leadville’s acknowledgment of its debt and

confirmation that the debt remains unpaid and continues to accrue interest constitutes

the requisite implicit promise to pay. To the extent the ancient cases relied on by La

Plata hold that in addition to an acknowledgment of an existing debt, some further

promise or at least expression of intent or willingness to pay is required, those cases

have not represented the law of this jurisdiction for more than a half-century.

                                            8
¶14   To the extent La Plata argues, as apparently the court of appeals believed to be

the case, that Leadville’s acknowledgment of its outstanding debts was nevertheless

void and ineffective to renew the debt for the reason that it was included in a document

failing in its purpose to modify the terms of the debentures, we find that argument

unpersuasive.    Whether, as La Plata contends but Hutchins disputes, the 2003

documents amounted to a contract, Leadville’s acknowledgment of its debts was not

equivocal or conditioned on the fulfillment of any condition by the debenture holders.

By the same token, while the wording of the documents themselves lends support to

Hutchins’s assertion that the documents were drafted to include several separate and

distinct legal bases permitting the debt holders to withhold collection efforts with

impunity, it is at least clear from the language of the documents themselves that the

acknowledgment is also not conditioned on the successful modification of the terms of

the debentures. And to the extent the acknowledgment could somehow be considered

given in exchange for a promise not to attempt collection before expiration of the

existing limitations period, that condition would obviously have been fulfilled and no

longer a qualification on the acknowledgment by the time the existing limitations

period ran.

¶15   Finally, to the extent La Plata suggests that regardless of any new promise to pay

by Leadville, the date upon which the debentures would become due could not be

changed without modifying the debentures according to their own terms, that theory

was clearly not the basis of the court of appeals’ ruling, which implied that an

acknowledgment contained in a separate signed writing of its own may well have

                                           9
extended the limitations period, nor has that argument been sufficiently developed in

this court. Whether or not parties might effectively limit collection of a debt to a period

shorter than otherwise permitted by law, it is hardly self-evident that an agreement

creating a debt implicitly nullifies the effect of a long-established doctrine of law

governing the applicability of statutory limitations periods merely by specifying a due

date and the requirements for modification of the agreement, and La Plata has offered

no authority for such a proposition.

¶16    Because the documents in question were in writing, were signed by Leadville,

and contained a clear and unqualified acknowledgement of the debt owed to Hutchins

and Gasper, they constituted a new promise to pay, establishing a new accrual date and

effectively extending the limitations period on collection of the debt, according to the

statutes and case law of this jurisdiction, whether or not the documents in question also

successfully modified the terms of the debentures. In light of our determination that

the lower courts erred in failing to find that Leadville’s acknowledgment established a

new accrual date for the outstanding debentures, we consider it unnecessary to address

the claim of Hutchins and Gasper concerning waiver of Leadville’s defenses.

                                           III.

¶17    The judgment of the court of appeals is therefore reversed and the case is

remanded for further proceedings consistent with this opinion.

JUSTICE HOOD dissents, and JUSTICE MÁRQUEZ and JUSTICE GABRIEL join in
the dissent.

                                            10
JUSTICE HOOD, dissenting.

¶18    The majority concludes that documents signed by Leadville satisfied the

requirements for an acknowledgment of a debt, even though (1) these documents were

proposed amendments to the debentures at issue, not independent acknowledgments,

and (2) these proposed amendments did not satisfy the parties’ contractual

requirements for modifying the debentures. In my view, the failed amendments were

void; thus, so was the attempted acknowledgment of the debt contained within them.

The majority instead perceives in these failed amendments new promises by Leadville

to pay Hutchins and Gasper, new promises that established a new accrual date and

effectively extended the applicable statute of limitations.      Maj. op. ¶ 2.       But in

recognizing these promises, the majority enforces a fundamental change to the

debentures—namely their due date—even though this change did not comport with the

parties’ agreed-upon process for modification. Because the majority circumvents the

parties’ contractual arrangement, I respectfully dissent.

¶19    The trial court concluded that the loan extension agreements were void because

they constituted a “modification” to the debentures requiring consent of two-thirds of

the outstanding debtholders, and Leadville failed to obtain the requisite consent.

¶20    Petitioners appealed, arguing in part that the two-thirds consent requirement did

not apply.     The court of appeals rejected this argument, concluding that the

acknowledgement and waiver purported to modify the debentures and were therefore

subject to the two-thirds consent requirement:

                                             1
      [T]he 2003 extension agreements clearly and unambiguously operated as a
      modification of the debentures and not solely, as Hutchins contends, as an
      acknowledgment of the debt. The operative terms of the agreements
      specified an intent to extend the debentures’ maturity dates by modifying
      and amending the terms of the debentures. Thus, we conclude that,
      consistent with the plain meaning of their language, the 2003 extension
      agreements purported to modify the terms of the debentures and
      therefore required agreement of two-thirds of the debenture holders.

La Plata Mountain Res., Inc. v. Leadville Mining Corp., No. 11CA0156, slip op. at 9–10

(Colo. App. June 6, 2013) (citation omitted). Like the trial court, the court of appeals

concluded that the requisite consent had not been obtained.

¶21   I agree with the trial court and the court of appeals.            While Leadville

unquestionably    acknowledged      its   debt   to   Hutchins    and    Gasper,    that

acknowledgment—purporting to extend the debentures’ maturity date to December 31,

2003—was contained in a document entitled, “Allonge1 and Amendment to Leadville

Corporation 12% Convertible Debenture Due October 31, 1989” (“Amendment”). On its

face, the Amendment states that it is to be attached to “and made a part of” the

debenture. Thus, the acknowledgment on which the majority relies was part and parcel

of a proposed amendment to the debenture, which had to be approved by “the holders

of 66–2/3% in aggregate principal amount of the outstanding Debentures.”            The

1 An “allonge” is a “slip of paper sometimes attached to a negotiable instrument for the
purpose of receiving further indorsements when the original paper is filled with
indorsements.” Allonge, Black’s Law Dictionary (9th ed. 2009); see also Lamson v.
Commercial Credit Corp., 531 P.2d 966, 968 (Colo. 1975) (“The subject indorsement was
typed on two legal size sheets of paper. It would have been physically impossible to
place all of the language on the two small checks. Therefore, the indorsement had to be
‘affixed’ to them in some way. Such a paper is called an allonge.”).

                                           2
division concluded that this requirement had not been satisfied, and that determination

is not before us.

¶22    I am not persuaded otherwise by Hutchins’s and Gasper’s contention that the

amendment was actually intended to achieve three separate purposes (i.e., a waiver, an

acknowledgment of the debt, and a modification), and that even if the modification

failed, the waiver and acknowledgment were valid. This argument ignores the form in

which Hutchins and Gasper chose to accomplish their desired goals. In my view, they

must live with their choice.

¶23    Because the Amendment—and therefore the acknowledgment of debt contained

within it—failed, I would affirm the division’s conclusion that any attempt by Hutchins

and Gasper to collect on the debt at issue would be time barred.

¶24    For these reasons, I respectfully dissent.

       I am authorized to state that JUSTICE MÁRQUEZ and JUSTICE GABRIEL join in

this dissent.

                                             3