UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
ERNEST WAYNE MARDIS and
OPAL ANN MARDIS
DEBTORS CASE NO. 90-00257
MAXIE HIGGASON, TRUSTEE PLAINTIFF
VS. ADV. NO. 90-0251
ERNEST WAYNE MARDIS, OPAL ANN
MARDIS, LONDON BANK AND TRUST
COMPANY, and CUMBERLAND VALLEY
NATIONAL BANK AND TRUST COMPANY DEFENDANTS
This matter is before the Court on the Motion for Summary Judgment of the defendant debtors, Ernest Wayne and Opal Ann Mardis. The debtors seek to limit the amount of the lien claimed on a 1987 Volvo automobile by defendant Cumberland Valley National Bank and Trust Company ("the Bank"). The Bank has filed its response to the Motion for Summary Judgment. 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)(K).
The record in this case indicates that on December 11, 1986, the debtors executed an installment loan agreement with the Bank in the principal amount of $14,217.52 and therein gave the Bank a security interest in the 1987 Volvo automobile purchased with the proceeds. A separate Security Agreement creating a security interest in the Volvo was apparently executed simultaneously, although the Security Agreement itself is dated December 21, 1986. The Security Agreement contains a so-called "future advance clause" which states in part:
The security interest created hereby secures payment and performance of...any and all indebtedness, obligation or liability of Debtor to Secured Party, however evidenced, whether now existing or hereafter arising, direct or indirect, absolute or contingent, joint or several, and however owned, held or acquired by Secured Party.
The debtors have also executed promissory notes to and in favor of the Bank dated April 1, 1988, in the principal amount of $68,955.16, and dated June 15, 1989, in the principal amount of $23,772.63.
The debtors have based their Motion for Summary Judgment on the fact that the "Security" section of the installment loan agreement does not show that it was marked to indicate "the collateral below will also secure other loans you have with us". While the absence of such an indication on the face of the installment loan agreement could conceivably cause some confusion, the debtors were put on notice of the extent of the Bank's security interest by the future advance clause in the Security Agreement, executed simultaneously with the installment loan agreement, which
clearly states, as set out above, that the collateral does indeed secure any and all obligations of the debtor to the secured party.
KRS 355.9-204(3) provides that "[o]bligations covered by a security agreement may include future advances or other value whether or not the advances or value are given pursuant to commitment...". In First National Bank of Grayson v. Citizens Deposit Bank and Trust, Ky. App., 735 S.W.2d 328, 331 (1987), the court held that even where the underlying installment note had been paid off, the future advance clause in the security agreement operated to secure other debts of the borrower, where the security agreement was never released. This Court must therefore conclude that the Bank's security interest in the 1987 Volvo extends to all indebtedness incurred by the debtors in favor of the Bank, and not just the specific indebtedness described in the installment loan agreement of December 11, 1986. In addition, it appearing that the indebtedness secured by the subject automobile greatly exceeds its present value, the trustee's Complaint is thereby rendered moot.
The debtors not having satisfied their burden of demonstrating that there is no genuine issue as to any material fact pursuant to FRCP 56(c), it is the opinion of this Court that their Motion for Summary Judgment that only the promissory note dated December 11, 1986, is secured by a lien on the 1987 Volvo automobile, and that other indebtedness owed Cumberland Valley National Bank does not constitute a lien on said vehicle, should be OVERRULED. It is further the opinion of this Court that the Motion of Cumberland Valley National Bank for Summary Judgment on the pleadings, depositions and memoranda filed in this case should be SUSTAINED, and that the trustee's Complaint should be DISMISSED.
By the Court -
Willis C. Cunnagin, Esq.
Warren B. Little, Esq.
Maxie E. Higgason, Esq., Trustee