COMMERCIAL FACTORS v. CLARKE WAGGENER

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Docket Number

No. 83CA0510

Attorney(S)

Erickson, Holmes, Nicholls, Kusic Sussman, John B. Kusic, Michael J. Shidler, for plaintiff-appellant. Carpenter Klatskin, P.C., Willis Carpenter, Janell Kinzie, for defendant-appellee. Division III.

Judges

Opinion by JUDGE VAN CISE.

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Smart Summary

Factual and Procedural Background

Raynard and Susan Fenster, joint tenants, owned and occupied a house and lot in northwest Denver. Neither recorded a homestead declaration; the property was subject only to the automatic homestead exemption under § 38-41-202(1), C.R.S. In 1979 a deed of trust and a note were prepared for both spouses; the deed purported to secure a promissory note payable to Clarke Waggener, P.C. (CW). Raynard alone signed both instruments; the note was for $10,000 and the deed of trust was recorded the day after execution. In 1980 the Fensters borrowed $35,000 from Commercial Factors of Denver (Commercial), secured by a deed of trust; after default Commercial foreclosed and acquired the property by public trustee's deed in 1981. Commercial demanded CW release the 1979 deed; CW refused, and Commercial filed this declaratory judgment action seeking a declaration that CW's deed of trust was void because (1) it encumbered homesteaded property without both spouses' signatures and (2) it failed to state the amount secured; Commercial also sought damages and attorney's fees under § 38-35-109(3). CW claimed the deed was valid and counterclaimed for attorney's fees under § 13-17-101 et seq. After trial the court found the CW deed of trust valid, decreed it encumbered the property, entered judgment for CW on Commercial's claims, and denied CW's counterclaim on the ground the action was not groundless. Commercial appeals.

Legal Issues Presented

Whether, where homestead protection arose solely by operation of the automatic statute and no homestead declaration was recorded, a joint tenant (Raynard) could encumber his interest in homesteaded property without the spouse's signature.
Whether a recorded deed of trust is invalid for failure to state the dollar amount of the indebtedness it secures.

Arguments of the Parties

Plaintiff-Appellant (Commercial)

The deed of trust is void because it attempted to encumber homesteaded property without both spouses' signatures.
The deed of trust is an incomplete instrument and invalid because it failed to state the dollar amount of the indebtedness secured.
Commercial sought damages and attorney's fees under § 38-35-109(3) for recording an invalid lien.

Defendant-Appellee (Clarke Waggener, P.C.)

CW asserted the deed of trust was valid despite only one spouse signing.
CW contended the deed's reference to the note was sufficient and thus the omission of the dollar amount did not invalidate the deed.
CW counterclaimed for attorney's fees under § 13-17-101 et seq. for defending against frivolous claims.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
First National Bank v. Energy Fuels Corp., 200 Colo. 540, 618 P.2d 1115 (1980)	Each joint tenant owns an undivided one-half interest; a joint tenant cannot alienate or encumber the other's interest without consent.	Used to explain joint tenancy ownership and to show a joint tenant may not encumber the other's interest but may encumber his own undivided interest.
See Sanders v. Knapp, 674 P.2d 385 (Colo.App. 1983)	A joint tenant can convey or encumber the interest that he owns.	Applied to support that Raynard could encumber his own interest despite joint tenancy.
Wise v. Thomas, 117 Colo. 376, 188 P.2d 444 (1947)	Cases where a homestead declaration had been filed or entered on the record.	Distinguished as inapposite because those cases involved recorded homestead declarations.
Knoche v. Morgan, 664 P.2d 258 (Colo.App. 1983)	Cases where a homestead declaration had been filed or entered on the record.	Distinguished as inapposite for the same reason.
Smith v. Haertel, 125 Colo. 348, 244 P.2d 377 (1952)	Dictum suggesting the amount of the debt must be recited in the deed of trust for validity.	Not followed as controlling; Commercial relied on the dictum but the court noted other Colorado cases to the contrary.
Parker v. McGinty, 77 Colo. 458, 239 P. 10 (1925)	"Deed of trust by reference to the note puts all purchasers on inquiry as to its terms..."	Relied upon to hold that reference to the note provided inquiry notice and that omission of amount did not invalidate the deed.
Clayton v. First National Bank, 75 Colo. 393, 226 P. 141 (1924)	"An instrument of record sufficient to excite attention... is notice of everything to which such inquiry would have led."	Used to support the conclusion that a recorded deed referencing a note gave notice of the indebtedness' terms.
See also Whatley v. Cuddy, 148 Colo. 362, 366 P.2d 671 (1961)	Support for the principle that a recorded instrument that provokes inquiry constitutes notice.	Cited alongside Parker and Clayton to support that the deed's reference to the note supplied requisite notice.

Court's Reasoning and Analysis

The court addressed the two contentions sequentially. First, it analyzed Colorado statutes governing homestead and conveyances. Section 38-35-118(1) generally requires both spouses to execute conveyances or encumbrances of homesteaded property, but § 38-41-202(3) permits property homesteaded solely by operation of the automatic provision of § 38-41-202(1) to be conveyed or encumbered by the owner alone, with the owner determined without regard to homestead rights. Section 38-41-202(4) makes both spouses' signatures necessary only when a written declaration of homestead is recorded. Because the Fensters had not recorded a homestead declaration and the homestead arose only automatically, the court concluded Raynard could encumber his undivided one-half interest without Susan's signature. The court applied joint-tenancy principles (citing First National Bank v. Energy Fuels Corp. and Sanders v. Knapp) to explain that while a joint tenant cannot encumber the other's interest, he may encumber his own interest.

Second, on the omission of the debt amount, the court reviewed controlling precedent. Although Commercial relied on dictum in Smith v. Haertel suggesting an amount must be recited, the court cited earlier Colorado cases (Parker v. McGinty; Clayton v. First National Bank; Whatley v. Cuddy) holding that a deed of trust that references a note places purchasers on inquiry and thus provides notice of the note's terms. Because the recorded deed disclosed it secured a promissory note payable to CW, Commercial could have discovered the indebtedness' details upon inquiry; the omission of the dollar amount did not render the deed invalid.

Holding and Implications

Judgment affirmed.

Holding: The trial court's decree that the 1979 deed of trust in favor of Clarke Waggener, P.C. is a valid encumbrance on the subject property is affirmed. The court's judgment for CW on Commercial's claims stands. The trial court also found the action was not groundless and therefore denied CW's counterclaim for attorney's fees. CW did not cross-appeal.

Implications: The direct effect is that CW's recorded deed of trust remains a valid lien on the property and Commercial's declaratory relief and fee claims were denied; no broader change in precedent was announced beyond the court's application of existing statutory interpretation and notice cases cited in the opinion.

Show full summary ...

Commercial Factors of Den v. r, a Colorado corporation, Plaintiff-Appellant,

Opinion by JUDGE VAN CISE.

In this declaratory judgment action, plaintiff, Commercial Factors of Denver (Commercial), appeals a judgment declaring that a deed of trust for the benefit of defendant, Clarke Waggener, P.C. (CW), is a valid encumbrance on property owned by Commercial. We affirm.

Raynard and Susan Fenster, husband and wife, owned in joint tenancy and occupied a house and lot (the subject property) in northwest Denver. Neither of the Fensters ever recorded any document declaring their homestead rights therein. See § 38-41-202(4), C.R.S. (1982 Repl. Vol. 16A). However, it was subject to the automatic homestead exemption provided for in § 38-41-202(1), C.R.S. (1982 Repl. Vol. 16A).

In 1979, two documents, a deed of trust and a note, were prepared for signature of both Fensters. The deed of trust purported to convey all of the subject property to the public trustee to secure a promissory note of the same date, amount not stated, payable with 12% interest to CW on January 1, 1980. The deed of trust contained a waiver and release of homestead rights. The note was for $10,000. Raynard, but not Susan, signed both documents. The deed of trust was recorded the day after it was signed.

In 1980, the Fensters borrowed $35,000 from Commercial and secured that loan by a deed of trust on the subject property. The Fensters defaulted, Commercial foreclosed, and it acquired the property by public trustee's deed in 1981. Commercial demanded that CW release its 1979 deed of trust. See § 38-35-109(3), C.R.S. (1982 Repl. Vol. 16A). When the demand was refused, this action was commenced.

In its complaint, Commercial sought a declaratory judgment that CW's deed of trust is void in that (1) it attempts to encumber homesteaded property without being signed by both husband and wife and (2) it is an incomplete instrument because it does not include the amount of the indebtedness secured. It also sought damages and attorney's fees under § 38-35-109(3), C.R.S. (1982 Repl. Vol. 16A) for CW's having recorded an invalid document purporting to create a lien against the property. CW claimed that the deed of trust was valid, and counterclaimed for attorney's fees under § 13-17-101, et seq., C.R.S. (1983 Cum. Supp.), for having to defend against frivolous and groundless claims.

After trial, the court made detailed findings and conclusions. It then decreed that the CW deed of trust is a valid instrument and does encumber the subject property. So holding, it entered judgment for CW and against Commercial on its claims. Finding that the action was not groundless, it held in favor of Commercial and against CW on its counterclaim. CW has not cross-appealed.

Commercial's first contention on appeal is that, since the subject property was homesteaded, the signatures of both Raynard and Susan Fenster were necessary to encumber the property. We disagree.

It is undisputed the subject property was homesteaded solely by operation of the automatic provisions of § 38-41-202(1), C.R.S. (1982 Repl. Vol. 16A). Hence, the issue is whether, under the circumstances, Raynard could encumber his interest in the property so homesteaded without Susan's joining in the encumbrance. We hold that he can.

Section 38-35-118(1), C.R.S. (1982 Repl. Vol. 16A) provides in pertinent part:

" Except as provided in Section 38-41-202(3), to convey or encumber homesteaded property, the husband and wife . . . shall execute the conveyance or encumbrance." (emphasis added)

However, § 38-41-202(3) C.R.S. (1982 Repl. Vol. 16A) provides:

"Subject to the provisions of subsection (4) of this section, property homesteaded solely by operation of the automatic provisions of subsection (1) of this section may be conveyed or encumbered by the owner of the property free and clear of all homestead rights, and no signature other than that of the owner shall be required. The owner of the property shall be determined without regard to the ownership of any homestead rights." (emphasis added)

And, § 38-41-202(4), C.R.S. (1982 Repl. Vol. 16A) provides:

"If the owner of the property (householder) or the spouse of such owner records in the office of the county clerk and recorder of the county where the property is situate an instrument in writing describing such property, setting forth the nature and source of the owner's interest therein, and stating that the owner or the owner's spouse is homesteading such property . . . then the signature of both spouses to convey or encumber such property shall be required."

In other words, property homesteaded solely by operation of the automatic provisions of the statute may be conveyed or encumbered upon only the owner's signature unless a written declaration of homestead rights is recorded.

Each of two joint tenants owns an undivided one-half interest in the property as a whole. First National Bank v. Energy Fuels Corp., 200 Colo. 540, 618 P.2d 1115 (1980). A joint tenant cannot alienate, encumber, or transfer the interest of the other joint tenant without her consent, First National Bank, supra, but he can convey or encumber the interest that he owns. See Sanders v. Knapp, 674 P.2d 385 (Colo.App. 1983).

Wise v. Thomas, 117 Colo. 376, 188 P.2d 444 (1947), and Knoche v. Morgan, 664 P.2d 258 (Colo.App. 1983) are inapposite. In both a homestead declaration had been filed or entered on the margin of the record of the deed.

II.

Commercial's other contention for reversal is that the trial court erred by finding the deed of trust to be valid although it did not contain the dollar amount of the debt it was securing. We find no error.

Based on dictum in Smith v. Haertel, 125 Colo. 348, 244 P.2d 377 (1952), Commercial claims that the amount of the debt must have been recited in the deed of trust for it to be valid. However, other Colorado cases have held otherwise. The deed of trust "by reference to the note puts all purchasers on inquiry as to its terms and so they are, in effect, charged with notice of them." Parker v. McGinty, 77 Colo. 458, 239 P. 10 (1925). "[A]n instrument of record sufficient to excite attention, put one on his guard and call for inquiry, is notice of everything to which such inquiry would have led." Clayton v. First National Bank, 75 Colo. 393, 226 P. 141 (1924). See also Whatley v. Cuddy, 148 Colo. 362, 366 P.2d 671 (1961).

Here, the recorded deed of trust disclosed that it was securing a promissory note payable to CW. Commercial could have discovered the details of the indebtedness upon inquiry. The deed of trust was properly found to be valid.

Judgment affirmed.

JUDGE STERNBERG and JUDGE METZGER concur.