UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
RICKY DAVID SPARKS
LINDA SUE SPARKS
DEBTORS CASE NO. 93-10247
This matter is before the Court on a Motion to Alter, Amend, or Vacate filed by the debtors herein on March 29, 1994. The Motion is in regard to an Order entered herein on March 21, 1994, overruling the debtors' objection to the claim of creditor Ashland Armco Employees Credit Union ("the credit union"). The Motion was heard by the Court on April 7, 1994, and taken under advisement.
The debtors' objection to the credit union's claim was based on the premise that pre-existing credit card debt was not secured by a so-called "future advance clause" in a Loanliner security agreement which they executed when they borrowed money from the credit union to purchase a vehicle. They argued that the future advance clause did not apply to their credit card debt because certain disclosures required by the Truth in Lending Act, 15 U.S.C.''1601, et seq., were not made. The credit card account was unsecured by its own terms. This Court found that the future advance clause in the Loanliner agreement extended to their credit card debt.
The Motion to Alter, Amend, or Vacate asks that the Court reconsider three issues: whether or not future advance clauses automatically secure pre-existing debts; whether the credit union was required to specifically inform the debtors that the Loanliner agreement secured the VISA account, especially in light of the fact that that no security interest was taken pursuant to the VISA agreement; and whether disclosure requirements pursuant to Regulation Z were met.
The debtors cite no authority in support of their position on the first issue. They cite Dalton v. First National Bank of Grayson, Ky. App., 712 S.W.2d 954, in support of their position on the second issue. The Dalton court held that a future advance clause in a security agreement was not enforceable to secure payment of an overdraft on the drawers' account, because this was a transaction which was "of a different type or class than the original secured transaction." Id., at page 959.
The debtors argue that this reasoning extends to the facts herein. However, in In re Phillips, 161 B.R. 824 (Bkrtcy.W.D.Mo. 1993), the court when faced with a similar question found that a mobile home loan and a VISA account, both acquired from the debtor's credit union, could be classified as the same class, because both involved the extension of credit for consumer goods. Id., at page 827.
This Court is therefore of the opinion that the Dalton case does not undermine its previous decision in this matter, as the Dalton court's holding was based on a completely different fact situation which is inapplicable herein. This Court reiterates its finding that the future advance clause in the Loanliner agreement applies to the debtors' VISA account.
As concerns the debtors' arguments concerning the adequacy of notice, this Court adheres to its previous opinion that the notice given in the Loanliner agreement was adequate for its purposes. The debtors also contend, however, that the VISA agreement should have contained some provision which disclosed that an interest might be taken in some property which might secure the payment of their VISA account. They point to 12 C.F.R.'226.6(c) as authority for this position. That provision states:
The creditor shall disclose to the consumer, in terminology consistent with that to be used on the periodic statement, each of the following items, to the extent applicable;
(c) Security interests. The fact that the creditor has or will acquire a security interest in the property purchased under the plan, or in other property identified by item or type.
The Phillips case, supra, addressed this question as well. Therein, the debtor's VISA agreement provided for the granting of a security interest in any goods purchased with the VISA card and in shares on deposit with the credit union. The VISA agreement contained no disclosure of the possibilty of a security interest being taken in any other property. While the Phillips court noted the significance of the fact that the VISA account was a secured account, it went on to state:
Nor does the Visa loan agreement contradict the Purchase Money Security Agreement which secured any other loans with the bank 'now or in the future.' Had the documents been at odds, the later in time, the 'dragnet' would control. The plain reading of the loan documents indicate (sic) the Visa account is secured by the PMSI.
At page 827.
Based on this reasoning, it is the opinion of this Court that the fact that the VISA agreement being considered herein was not secured by its own terms does not prevent the VISA account balance from being secured under the terms of the Loanliner agreement. The Loanliner agreement is the later of the two documents, its disclosure terms are sufficient to satisfy the Truth in Lending Act, and that agreement controls. This Court therefore finds that the debtor's Motion to Alter, Amend or Vacate should be overruled. An order consistent with this opinion will be entered separately.
By the Court -
Paul Steward Snyder, Esq.
Brian Conaty, Esq.
Chapter 13 Trustee