Wells Fargo Bank, N.A. v. Burrier (In Re Burrier)
399 B.R. 258, 2008 Bankr. LEXIS 3445, 2008 WL 5422646 (2008)
Rule of Law:
A contractual stipulation requiring specific documentation (e.g., physical copies of cancelled checks) is unenforceable under the doctrines of impossibility of performance and mutual mistake of fact if modern banking practices, such as electronic check processing under the Check Clearing for the 21st Century Act, make such documentation unavailable and unforeseeable to one party, and the enforcing party fails to meet its burden of proof to the contrary.
Facts:
- On June 18, 2004, Brandon Michael Burrier and Denon Arae Burrier (Debtors) executed a Deed of Trust and Note with NBank, N.A. for a loan of $183,126.00, which was subsequently negotiated to Wells Fargo Bank, N.A.
- The Burriers sent mortgage payments to Wells Fargo for June, July, October, and December 2007, which they believed were made.
- Ms. Burrier repeatedly attempted to obtain cancelled checks from her bank, Academy Bank, for the disputed payments, but was unable to do so because the checks were processed electronically and not negotiated conventionally.
- The Burriers provided documentation to Wells Fargo, including their Academy Bank statements (Exhibits A-D), which showed checks for the disputed amounts processed electronically by “WFHM” and debited from their account, along with check carbons (Exhibits E-H) for the respective checks, payable to Wells Fargo.
Procedural Posture:
- On February 21, 2007, Brandon Michael Burrier and Denon Arae Burrier filed for relief under Chapter 13 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the District of Colorado.
- On August 21, 2007, the Debtors' Chapter 13 Plan was confirmed by the Bankruptcy Court.
- On August 26, 2007, Debtors filed a Motion to Modify their confirmed Plan and also filed a Modified Plan to increase the arrearage to be paid to Wells Fargo.
- On November 28, 2007, a Second Modified Plan was filed.
- On December 5, 2007, the Bankruptcy Court approved the Second Modified Plan.
- On February 26, 2008, Wells Fargo filed a Motion for Relief from Automatic Stay, alleging the Debtors failed to make certain post-petition mortgage payments.
- On March 20, 2008, Debtors filed a Response to Wells Fargo’s Motion, denying they failed to make payments.
- On April 11, 2008, the Debtors and Wells Fargo agreed to the terms of a Stipulation For Resolution of Motion for Relief From Automatic Stay.
- On April 14, 2008, the Bankruptcy Court issued an Order approving the Stipulation.
- On August 21, 2008, Wells Fargo filed a Verified Motion For Court to Enforce Terms of Stipulation and for Relief from the Automatic Stay, asserting Debtors had failed to comply with the Stipulation.
- On August 22, 2008, Debtors filed a Response opposing Wells Fargo’s Verified Motion, asserting impossibility of performance.
- On October 28, 2008, the Court conducted an evidentiary hearing on Wells Fargo’s Verified Motion.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Is a stipulation requiring a debtor to provide physical copies of both sides of negotiable instruments as proof of payment valid and enforceable when modern electronic check processing, governed by the Check Clearing for the 21st Century Act, makes such documentation unavailable to the debtor, thereby leading to impossibility of performance or mutual mistake of fact?
Opinions:
Majority - Sidney B. Brooks
No, the stipulation is not a valid and enforceable contract under the circumstances, and Wells Fargo's motion for relief from the automatic stay is denied. The Court concluded that Wells Fargo did not meet its burden of proving the stipulation was valid and enforceable. The stipulation's demand for "valid, accurate, and true copies of the front side and back side of all negotiable instruments" was rendered impossible by the Check Clearing for the 21st Century Act (Check 21 Act), which facilitates electronic check processing and truncation, eliminating the return of physical cancelled checks. The Court noted that Wells Fargo, as a major banking institution and proponent of the Check 21 Act, should have foreseen this change in industry practice. The Debtors provided persuasive evidence of payment, including bank statements showing debits to "WFHM" and check carbons. Wells Fargo failed to provide evidence to rebut the Debtors' evidence of payment or expert testimony explaining electronic transfers or its own procedures under Check 21. Applying the doctrine of "impossibility of performance," the Court found that the unavailability of physical checks made the performance "vitally different from what reasonably should have been within the contemplation of both parties" when the stipulation was made. Furthermore, the Court found a lack of "mutuality in contracting" due to a mutual mistake about the availability of the required documentation in the electronic age, rendering the stipulation subject to rescission. The burden of proof to enforce the contract was on Wells Fargo, and it failed to carry that burden.
Analysis:
This case highlights the significant impact of technological advancements, like the Check Clearing for the 21st Century Act, on contract enforceability, particularly concerning documentation requirements. It establishes that sophisticated parties drafting contracts (such as banks) bear a higher burden to account for contemporary industry standards and the practical availability of documentation. The ruling reinforces the doctrines of impossibility of performance and mutual mistake as defenses when contractual terms become unfulfillable due to unforeseen technological shifts. Future cases involving specific documentation demands in an increasingly digital environment may look to this decision to assess the reasonableness and enforceability of such terms, especially when there's an imbalance of knowledge between parties.
