UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
JERRY W. MONCRIEF
DEANNA A. MONCRIEF CASE NO. 92-60684
TRI-COUNTY NATIONAL BANK PLAINTIFF
VS: ADV. NO. 93-6044
JERRY W. MONCRIEF AND
DEANNA A. MONCRIEF DEFENDANTS
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This matter came before the Court for trial on March 18, 1994, and the parties having appeared and offered testimony upon the Complaint and Answer herein, and the Court having considered the Briefs of the parties herein, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
A. The Court adopts the Joint Stipulations of the parties herein in evidence as Joint Exhibit 1 as part of its Findings of Fact herein as follows:
"1. The plaintiff, Tri-County National Bank, ("Tri-County Bank"), is a banking institution duly licensed to do business in the Commonwealth of Kentucky with an address of Master Street & Beatty Avenue, Corbin, Kentucky 40701.
2. The defendants, Jerry W. Moncrief and Deanna A. Moncrief, ("Moncriefs"), are individuals with an address of 112 North Poplar Street, Corbin, Kentucky 40701.
3. Jurisdiction over this action is conferred upon this Court by 28 U.S.C. 1334.
4. This civil action is filed pursuant to 11 U.S.C. Section 523(a) 2(A).
5. Terry Pugh was employed by Tri-County Bank as a loan officer and was the particular loan officer who dealt with the Moncriefs on behalf of the bank on the dates Jerry Moncrief and/or Deanna Moncrief executed the following loan documents:
A. Security Agreement dated November 7, 1989, signed by Jerry Moncrief (Plaintiff's Exhibit A).
B. Financing Statement signed by Jerry Moncrief (Plaintiff's Exhibit B).
C. Promissory Note dated December 23, 1989, signed by Jerry Moncrief (Plaintiff's Exhibit C).
D. Promissory Note dated June 21, 1990, signed by Jerry Moncrief (Plaintiff's Exhibit D).
E. Promissory Note dated January 9, 1992, signed by Jerry Moncrief and Deanna Moncrief (Plaintiff's Exhibit E).
F. Disclosure Statement dated January 9, 1992, signed by Jerry Moncrief and Deanna Moncrief (Plaintiff's Exhibit F).
6. At the time the Moncriefs originally obtained their loan with Tri-County Bank, Charles Rapier was the President and CEO of the bank and occasionally talked with the Moncriefs about their loan but the Moncriefs' main contact with the bank was through Terry Pugh.
7. Don Ashley, a loan officer with the bank, dealt with the Moncriefs occasionally on their loans but his contacts with the Moncriefs occurred only after the Moncriefs became delinquent on their loan payments and was for purposes of collection by the bank.
8. On November 7, 1989, Jerry Moncrief executed a security agreement with Tri-County Bank giving the bank a security interest of $10,000.00 in his 1979 45 foot utility trailer, Vin. No. 7T93589001, and "including all of the accessions and fixtures, including without limitation all of the accessions and fixtures, and all accessions and fixtures here owned, hereafter acquired or wherever located". (Plaintiff's "Exhibit A").
9. At the time Jerry Moncrief executed the security agreement referenced in stipulation number 8, he intended to give the bank a security interest in the trailer described in the security agreement.
10. Prior to him signing the security agreement referred to in stipulation 8 above, Jerry Moncrief read the security agreement.
11. On November 7, 1989, Jerry Moncrief signed a UCC-1/Financing Statement identifying as collateral the 1979 45 foot utility trailer more specifically described in stipulation number 8 above. (Plaintiff's "Exhibit B").
12. The UCC-1/Financing Statement described in stipulation 11 above was filed in the Knox County Court Clerk's Office as File No. 3856 on November 15, 1989.
13. Tri-County Bank did not perfect its lien on the subject trailer by noting its lien on the trailer's Certificate of Title.
14. On December 23, 1989, Jerry Moncrief read and signed a promissory note in order to borrow the sum of $21,826.62 from Tri-County Bank. (Plaintiff's "Exhibit C").
15. The promissory note referred to in stipulation 14 above specifically states that Tri-County Bank was taking a security interest in the 1979 trailer, Vin. No. 7T93589001 and a 1984 Chevrolet Blazer.
16. On June 21, 1990, Jerry Moncrief read and signed a promissory note in order to finance the sum of $21,826.62 from Tri-County Bank. (Plaintiff's "Exhibit D").
17. The promissory note referred to in stipulation 16 above specifically states that Tri-County Bank was taking a security interest in the 1979 trailer.
18. On January 9, 1992, Jerry Moncrief and Deanna Moncrief read and signed a promissory note in order to finance the sum of $21,377.75 from Tri-County Bank. (Plaintiff's "Exhibit E").
19. That the promissory note referred to in stipulation 18 above specifically states that Tri-County Bank was taking a security interest in the collateral previously pledged being the 1979 trailer, Vin. No. 7T93589001, and 1984 Blazer.
20. That on January 9, 1992, Jerry Moncrief and Deanna Moncrief read and signed a disclosure statement in order to finance the sum of $21,377.75 from Tri-County Bank. (Plaintiff's "Exhibit F").
21. That the disclosure statement referred to in stipulation 20 above specifically states that Tri-County Bank was taking a security interest in the collateral previously pledged being the utility trailer and 1984 Blazer.
22. The loan documents executed on January 9, 1992 were for the renewal of existing indebtedness; no new monies were advanced by the bank.
23. That the time the January 9, 1992 loan documents were executed, Tri-County Bank released the lien on the Blazer and said Blazer had been sold with the bank's permission.
24. In November of 1990 the Moncriefs sold the 1979 45 foot utility trailer to William Dietrich for a lump sum of $4,500.00.
25. The sale of the trailer from the Moncriefs to William Dietrich took place at the North Corbin Interchange of I-75.
26. No one from Tri-County Bank was present at the sale of the utility trailer nor was anyone from Tri-County Bank advised of the time or place of the sale.
27. No one from Tri-County Bank was told the amount of the sale price for the trailer prior to the sale.
28. At no time did the Moncriefs receive a written release from Tri-County Bank regarding its security interest in the 1979 45 foot utility trailer.
29. The Moncriefs did not pay Tri-County Bank the money they received from the sale of the trailer in a lump sum to be applied to the trailer loan.
30. The Moncriefs made interest and principal payments on all loans to the bank in a reasonably, timely fashion until they defaulted on their payments prior to filing their bankruptcy.
31. On September 28, 1992, the Moncriefs filed a Chapter 13 Bankruptcy Petition.
32. On June 9, 1993, the Moncriefs converted their Chapter 13 filing to a Chapter 7 filing.
33. The parties stipulate the deposition of Jerry Moncrief taken on January 27, 1993 and state that no one currently working at the bank, except for Charles Rapier who is still affiliated with the bank, was present during the transactions and can deny Mr. Moncrief's statements are true.
34. The parties stipulate that, after discovery, it was learned that Deanna Moncrief had no knowledge of the transactions which are the subject of this controversy and, since she presently is in ill health, will not be present nor testify at trial."
B. That the course of dealings between the plaintiff and defendant was casual and that the plaintiff's officer delivered to defendant Moncrief the Georgia title to the trailer in question. The evidence leads the Court to conclude that the plaintiff bank made no effort to protect itself by securing a Kentucky title with their lien noted thereon. The release of this document to the defendant noting no lien of the bank thereon comports with the testimony of the defendant.
CONCLUSIONS OF LAW
A. That this Court has jurisdiction of this matter pursuant to 28 U.S.C.'1334.
B. That this is a core proceeding pursuant to 28 U.S.C.'157(b)(2)(I).
C. That the burden of proof in this matter is upon the plaintiff.
D. That the standard of proof is by a preponderance of the evidence.
E. That, as appears in the record at trial, the parties agreed to dismiss defendant, Deanna A. Moncrief, from this action and the Court so ordered at trial.
F. That, while the Complaint alleged violations of 11 U.S.C.'523(a)(2), the parties, by agreement and in their Briefs, practice the case both under that statute and 11 U.S.C. '523(a)(6) and the Court sustained a motion at the conclusion of the evidence for the pleadings to conform to the evidence herein.
G. That there is no evidence of fraud on the part of the defendant as required pursuant to 11 U.S.C.'523(a)(2).
H. That, with respect to 11 U.S.C.'523(a)(6), the plaintiff must prove a willful and malicious conversion of the property interest of the plaintiff in the collateral in order to prevail in this matter.
I. The Court finds that the conversion of the collateral was, in fact, willful since the defendant has admitted that he deliberately sold the trailer and did not remit the proceeds to the bank pursuant to its security agreement.
J. That the failure of the plaintiff to perfect its security interest in the property does not necessarily bar the plaintiff from maintaining an action for a determination that the debt in non-dischargeable pursuant to 11 U.S.C.'523(a)(6). In re Petsch, 82 B.R. 605 (Bkrtcy N.D. Fla. 1988), In re Cardillo, 39 B.R. 548, 550 (Bkrtcy D. Mass. 1984), and In re Sidic, 44 B.R. 167 (Bkrtcy E.D. Wisc. 1984).
K. That this Court concludes that under the circumstances where the parties had a casual course of dealing and the bank failed to note its lien on the title, and where the bank released the Georgia title, with its lien not noted thereon, to the defendant, whereupon he sold the trailer, this Court cannot conclude that the bank has borne its burden of proving by a preponderance of the evidence that the defendant acted maliciously. The Court concludes that the defendant reasonably believed that the bank did not object to his liquidation of the collateral.
L. The attorneys for the parties herein shall submit a Judgment in favor of defendant herein in accordance with these within Findings of Fact and Conclusions of Law.
Dated this ______ day of __________________, 1994.
BY THE COURT
Barbara McDonald Griffin, Esq.
Wesley Tipton, Esq.
James R. Westenhofer, Esq.