Bender
DENVER (Legal Newsline) - The Colorado Supreme Court ruled earlier this week that a company cannot sue a man for the balance of a car loan on which he defaulted.
On Monday, the Court reversed the order of the Jefferson County District Court, which upheld a county court's determination that the state's six-year statute of limitations did not bar Account Brokers of Larimer County Inc.'s claim against Daniel Shane Hassler.
Hassler financed the purchase of a vehicle by entering into a security agreement with Account Brokers' predecessor-in-interest, Norlarco Credit Union, in which the vehicle served as collateral.
The agreement provided that the balance of the loan, plus the attendant interest, would be repaid in monthly installments.
When Hassler later defaulted on his loan, Norlarco first repossessed the vehicle and then sold it at auction.
Norlarco applied the proceeds of the auction to the balance of the loan. However, the proceeds were insufficient to cover the balance, so Hassler remained indebted for the deficiency.
Norlarco eventually transferred the debt to Account Brokers, which filed suit.
The company sued Hassler to recover the deficiency less than six years after the vehicle was sold at auction but more than six years after Hassler defaulted on the loan and the vehicle was repossessed.
Ruling in favor of Account Brokers, both the county court and district court on appeal determined that the statute of limitations did not bar its claim because the amount of the deficiency was not "liquidated or determinable" until Norlarco sold the vehicle at auction.
The state's high court quashed the lower court rulings.
Chief Justice Michael L. Bender, who wrote the Court's majority opinion, said the relevant legal inquiry under the statute of limitations is the date that the debt accrued -- that is, when the debt became due.
"We hold that under Colorado law and the express terms of the parties' security agreement, the present debt became due when it was accelerated following Norlarco's repossession of the vehicle and demand for full payment on the debt, which occurred more than six years before the initiation of the present suit," he wrote.
The Court explained for a security agreement that is to be repaid in installments, the debt for each installment becomes due on the date that each installment is missed.
"Once an installment security agreement is validly accelerated, however, the entirety of the remaining balance becomes due and therefore the cause of action to collect the entire debt accrues," Bender wrote.
The justice said in this case, Norlaco invoked the security agreement's optional acceleration clause by repossessing Hassler's vehicle on Oct. 30, 2001, and sending him a letter soon after demanding that he repay the entirety of his debt.
"Because Account Brokers, Norlarco's successor-in-interest, filed its claim to collect the remainder of the debt on May 7, 2008, which was more than six years later, we hold that the present claim is barred by the statute of limitations," Bender wrote.
The Court remanded the case to the district court to be returned to the county court.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.