No. 85CA0849Colorado Court of Appeals.
Decided April 30, 1987. Rehearing Denied June 4, 1987. Certiorari Denied Richards November 9, 1987 (87SC240).
Appeal from the District Court of Eagle County Honorable Richard H. Hart, Judge
McMichael Benedict, Mitchell Benedict, III, for Plaintiffs-Appellees.
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Calkins, Kramer, Grimshaw Harring, James S. Bailey, Jr., Kathleen Anne Lord, for Defendants-Appellants.
Division I.
Opinion by JUDGE PIERCE.
[1] Defendants, Charles and Frances Spanel, d/b/a Inter-Mountain Engineering, Ltd., appeal the trial court judgment entered in favor of plaintiffs, Carol, Kenneth, and David Richards, Janice A. Nottingham, Patricia A. Loder, Sandy and John H. Schwartze, d/b/a Richards Engineers. They also appeal an award of attorney fees, and the granting of a summary judgment dismissing their counterclaim. We affirm in part, reverse in part, and remand for further proceedings. [2] This dispute arises from a purchase agreement between the parties, whereby defendants acquired plaintiffs’ businesses, Richards Engineers, Inc., and Carol’s Secretarial and Printing Service. The contract provided that a portion of the purchase price would be in the form of a $91,000 promissory note, which was payable in bi-annual installments over a ten-year period. The contract further provided that at the end of five years, defendants were to use their best efforts to obtain refinancing of the principal balance in order to pay off the plaintiffs. [3] The note was secured by a security agreement containing an “insecurity” clause. This clause allowed defendants’ obligations to be accelerated under the note “if [plaintiffs] deemed itself insecure.” [4] Timely payments were made by defendants in accordance with the ten-year amortization schedule incorporated into the note. At the end of five years, plaintiffs sought to obtain payment of the entire balance of the note; however, defendants were unable to obtain refinancing. Plaintiffs then deemed themselves insecure pursuant to the insecurity clause. [5] Defendants refused immediate payment of the balance, and plaintiffs brought this action. The trial was to the court, and judgment was entered in favor of plaintiffs. The trial court found that although the parties had agreed to a ten-year payment schedule, plaintiffs actually expected full payment at the end of five years. The trial court further found that plaintiffs’ insecurity arose when defendants refused to pay the entire balance at the end of five years. Using a subjective test, the trial court determined that plaintiffs were insecure. The court further ordered defendants to pay plaintiffs’ attorney fees as a cost of collection. I.
[6] Defendants first contend that the trial court erred when it applied a purely subjective test in determining whether plaintiffs’ declaration of insecurity was in good faith. We agree.
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jurisdictions. Many jurisdictions have determined that “good faith” in this context is to be measured by wholly subjective standards. See Ginn v. Citizens Southern National Bank, 145 Ga. App. 175, 243 S.E.2d 528
(1978); Farmers Cooperative Elevator, Inc. v. State Bank, 236 N.W.2d 674
(Iowa 1975); Fort Knox National Bank v. Gustafson, 385 S.W.2d 196 (Ky. 1964); Van Horn v. Van De Wol, Inc., 6 Wn. App. 959, 497 P.2d 252
(1972). Thus, in these jurisdictions, the state of mind of the creditor is the measure of good faith, regardless of the reasonableness of such mental state.
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[23] Plaintiffs contend that even if an objective standard is applied, adequate facts are present to sustain the trial court’s holding. We disagree. [24] Although there was testimony that defendants had violated certain terms of the contract, there were no findings of fact sufficient alone to demonstrate the existence of reasonable grounds for plaintiffs to have deemed themselves insecure. Accordingly, this case must be remanded for further findings of fact and conclusions of law applying an objective reasonableness test. II.
[25] Defendants also contend the trial court erred in granting plaintiffs’ motion for summary judgment on defendants’ counterclaim for misrepresentation. The trial court found that this claim for relief was barred by the three-year statute of limitations under § 13-80-109, C.R.S. We find no error in the trial court’s ruling.
(1979). However, defendants argue that because the misrepresentations which induced them to enter into the contract were contained within the contract itself, their counterclaim is one on the case founded on contract and, thus, is governed by § 13-80-110(1)(d), C.R.S. (six-year statute of limitations). [27] It is the nature of the right sued upon and not the form of the action or the relief requested which determines the applicable statute of limitation. Ass’n of Owners v. Otte, 38 Colo. App. 12, 550 P.2d 894
(1976). [28] Defendants’ counterclaim alleged that plaintiffs had made certain material misrepresentations of fact which defendants had relied upon in entering into the contract. The claim pleaded by them was based upon the tort of deceit. It did not allege that plaintiffs’ representations violated some provision of the agreement. We find unpersuasive defendants’ argument that misrepresentations of fact arising outside the contract are significantly different from those misrepresentations which are contained within the contract. Each claim is in the nature of fraud and, thus, is governed by the fraud statute of limitations. See §13-80-109, C.R.S. Therefore, the trial court correctly ruled that defendants’ claim was in fraud and was barred by § 13-80-109. [29] Accordingly, the judgment of the trial court granting plaintiffs’ motion for summary judgment on defendants’ counterclaim is affirmed. The remainder of the judgment is reversed, and the cause is remanded for further proceedings consistent with this opinion. [30] CHIEF JUDGE ENOCH and JUDGE CRISWELL concur.