UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
JOHN D. ROGERS CASE NO. 91-60634
DEBRA S. ROGERS
This matter is before the Court upon the Motion to Establish Priorities Regarding Claims of Creditor, First State Bank, and Creditor, Citizens National Bank filed herein on May 26, 1992. Citizens National Bank of Somerset, Kentucky ("Citizens") has responded and the parties have filed their briefs and the deposition of Charles B. Farris, various exhibits and affidavits.
The central facts are relatively simple. On June 7, 1986, Citizens executed an estoppel certificate in favor of First State Bank & Trust Company ("First") indicating that First could loan some $75,000 to the debtors and Citizens would limit their liens against collateral to the then existing balance of $334,040.99. The result, obviously, is that Citizens could assert the validity of its liens as prior to First only up to that sum. Apparently First proceeded to make the loan to debtors in reliance upon the estoppel certificate. Later, on November 24, 1986, a note was executed by the debtors in favor of Citizens in the amount of $203,770.39. First claims that this new note was a novation with respect to the obligations involved while Citizens contends that it simply was a consolidation of already existing obligations of the debtors and as such was a renewal (although the copies in the Court's file appear to truncate the left hand side of the note) although not marked as a renewal.
The depositions and documents before the Court indicate that no new money was received by the debtors upon execution of the November 24, 1986 note. The sums represented by the balance due on this note were a consolidation of preexisting debts.
Whether such a later note was a novation depends upon the intention of the parties to the notes. White v. Winchester Land Development Corp., 584 S.W.2d 56 (Ky.App. 1979), Matter of Cooley, 624 F.2d 55 (6th Cir. 1980).
While Citizens did not check the box indicating renewal and in fact checked the box indicating a new note, this Court must conclude that the intention of the parties was to renew existing obligations and consolidate them. No new consideration to Citizens has been shown and, based upon the entire transaction, there would appear to be no reason to reach a new agreement with the debtors. The Court accordingly holds that there was no novation and that the lien of Citizens is valid and superior to that of First in the amount of their remaining obligation not to exceed the specific limit contained in the estoppel certificate.
A separate order will be entered herein.
Dated this ______ day of September, 1992.
By the Court-
Benny E. Ham, Esq.
David J. Stetson, Esq.
United States Trustee