VS. ADV. NO. 91-6182






This matter is before the Court on the defendant's Motion for Summary Judgment. This action was commenced by the filing of the plaintiff's Complaint to Determine Dischargeability of Debt, alleging that the personal property given as security for a note did not exist or never belonged to the defendant. The defendant contends that the note is unsecured, and that the plaintiff's Complaint is therefore not well taken. This Court has jurisdiction of this matter pursuant to 28 U.S.C. '1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(I).

As stated above, this action was commenced by the filing of the plaintiff's Complaint, on August 5, 1991. The defendant filed his Answer on September 6, 1991, and his Motion for Summary Judgment on October 16, 1991. An Order for Trial was issued in this matter on October 23, 1991, setting the trial for January 3, 1992. On October 24, 1991, this matter was consolidated with Adv. No. 91-0181 for purposes of trial only. The plaintiff filed its Response to the defendant's Motion for Summary Judgment on November 13, 1991. An Order submitting the Motion for Summary Judgment was entered on November 20, 1991. On December 19, 1991, a hearing was conducted on the defendant's Motion to Continue Trial, and on January 2, 1992, an Order was entered rescheduling the trial for February 7, 1992.

The record in this case indicates that on January 3, 1990, the defendant executed a promissory note with the plaintiff in the amount of $8,238.65. On February 3, 1991, the defendant executed another promissory note with the plaintiff, the proceeds of which were used to pay off the January 3 note. The amount financed under the second note was $6,246.81. The February 3 note is the one at issue here. The defendant filed his Chapter 7 petition in this Court on April 10, 1991.

When the plaintiff filed its Complaint herein it alleged that it had been induced to loan the defendant money by "false pretenses, a false representation and actual fraud". This allegation was based on the plaintiff's contention that the collateral securing the January 3, 1990, note either never existed or did not belong to the defendant. The defendant maintains that the February 3, 1991, note is the only note evidencing a debt to the plaintiff by the defendant, and that it is unsecured by its terms.

The face of the February 3, 1991, note does indeed indicate that it is unsecured. The plaintiff argues in its Response to the Motion for Summary Judgment that the "unsecured" notation on the February 3 note was a mistake, and asks the Court to consider parol evidence of the bank's intention to secure that note with the same collateral that secured the January 3, 1990, note. It is the defendant's position that parol evidence may not be employed to construe a contract, in this case the note, that is clear on its face.

Kentucky law on the use of parol evidence in regard to a written contract is clear: preliminary and contemporaneous verbal agreements are presumed abandoned and become merged into writings executed by the parties, and parol evidence which varies the terms of a written contract is inadmissible. Kenland Realty Corporation v. Ky-Am Oil Company, Ky., 333 S.W.2d 511, 512. See also Smith v. Ferguson, Ky., 295 S.W.2d 792; National Equipment Co. v. Heib, Ky., 266 S.W.2d 349.

Parol evidence is admissible, however, to show conditions precedent, which relate to the existence of a valid contract. Long v. Jones, Ky., 319 S.W.2d 292. It is also admissible to vary the terms of a written contract in the case of a mutual mistake. Campbellsville Lumber Company v. Winfrey, Ky., 303 S.W.2d 284, 286.

The plaintiff herein has raised the question of the intention of the parties as to security for the February 3 note, contending that the defendant knew that it was intended that this note be secured. There is, therefore, an issue of material fact to be determined by the trial of this matter, and the defendant's Motion for Summary Judgment will be overruled by separate Order of this Court.

Entered this ______day of February, 1992.

By the Court -







Copies to:

Stephen W. Cessna, Esq.

Jeffery R. Tipton, Esq.

James R. Westenhoefer, Esq., Trustee