2016 CO 31
Colo.2016Background
- Husband (Ray Fiscus) owned real property titled solely in his name; Wife (Vickie) managed household finances and, without Husband's knowledge, forged his signature on powers of attorney, loan documents, two promissory notes (2008 and 2009), and deeds of trust securing the notes.
- Wife used forged POAs to obtain a $220,000 refinance in 2009, paid off the 2008 loan, and hid the loan and deed documents; Liberty Mortgage assigned the 2009 note and deed to BB&T and then to Branch Banking & Trust (BB&T).
- Husband discovered the fraud in 2011 after noticing unauthorized withdrawals and a credit check; he filed identity-theft reports and sued under Colorado’s spurious-lien statute seeking invalidation and release of the 2009 deed of trust.
- The district court found the 2009 deed spurious (forged), rejected BB&T’s holder-in-due-course and ratification defenses, and ordered the deed released; the court of appeals affirmed, treating deeds of trust as security instruments rather than negotiable instruments.
- The Colorado Supreme Court affirmed the court of appeals but on different grounds: it held that even assuming a deed of trust were negotiable, a purported maker may assert forgery against a holder in due course; here Husband had a valid forgery defense, was not negligent, and did not ratify.
Issues
| Issue | Plaintiff's Argument (Husband) | Defendant's Argument (BB&T) | Held |
|---|---|---|---|
| Whether a deed of trust securing a negotiable promissory note is itself a negotiable instrument under Article 3/Article 8 UCC | Deed need not be treated as negotiable to invalidate a forged lien; action under spurious-lien statute appropriate | A deed securing a negotiable note should be treated as negotiable and BB&T may claim holder-in-due-course protections | Court declined to decide negotiability; affirmed on forgery grounds and avoided resolving whether deeds are negotiable |
| Whether forgery is a defense against a holder in due course | Forgery negates existence of obligor’s signature and is a defense to enforcement even against holder in due course | Holder-in-due-course status precludes many defenses, so forgery may not defeat enforcement | Forgery challenges existence of the obligation; a purported maker may assert forgery even against a holder in due course |
| Whether Husband’s alleged negligence bars his forgery defense under UCC § 4-3-406 / § 4-8-406 | Husband exercised ordinary care; Wife actively concealed fraud so Husband was not negligent | Husband’s negligence contributed to forgery, so UCC negligence rule should bar forgery defense | On the facts found, Husband was not negligent; court declined to apply negligence bar and found no contribution to forgery |
| Whether Husband ratified the forged signatures (making them binding) | Husband lacked knowledge of material facts and therefore did not ratify | BB&T contends Husband ratified by conduct or acquiescence | Trial court’s credibility findings supported that Husband did not have full knowledge and did not ratify; affirmed |
Key Cases Cited
- Carpenter v. Longan, 83 U.S. (16 Wall.) 271 (1872) (historic rule that mortgage follows note; discussed but not controlling here)
- Haberl v. Bigelow, 855 P.2d 1368 (Colo. 1993) (promissory note remains negotiable even if secured by deed of trust)
- Upson v. Goodland State Bank & Trust Co., 823 P.2d 704 (Colo. 1992) (release of deed procured by fraud is invalid; distinguished here)
- Ingersoll-Rand Fin. Corp. v. Anderson, 921 F.2d 497 (D.C. Cir. 1990) (forgery defense available against holder in due course until genuineness is established)
- Columbus Invs. v. Lewis, 48 P.3d 1222 (Colo. 2002) (assignment of a negotiable note carries deed of trust as incident)
- Clancy Sys. Int'l, Inc. v. Salazar, 177 P.3d 1235 (Colo. 2008) (UCC displaces conflicting common-law rules)