Community Credit Union v. Conte (In Re Conte)

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

No. 99-40519

In the Matter of KENNETH J. CONTE,
Debtor

COMMUNITY CREDIT UNION

Appellant,

VERSUS

KENNETH J. CONTE

Appellee.

Appeal from the United States District Court
for the Eastern District of Texas

March 23, 2000

Before JONES, DUHÉ, and WIENER, Circuit Judges.

PER CURIAM:
In this case arising out of a Chapter 7 proceeding, Community

Credit Union (“Community Credit”) challenges the district court's

affirmance of the bankruptcy court's Order ruling that Community

Credit does not have a valid lien on Kenneth J. Conte's (“Debtor”)

automobile. For the reasons stated herein, we REVERSE.

BACKGROUND

In May 1992, Debtor borrowed money from Community Credit to
purchase a used 1989 Cadillac Sedan Deville. As part of this

transaction, Debtor executed a one page LoanLiner Note and

Disclosure Statement1 (“Note”) pledging the car as collateral. The

front-side of the Note contained Federal Truth in Lending

disclosures segregated from the remainder of the information

contained in the Note. See 15 U.S.C. § 1638. The back-side of

the Note contained two cross-collateralization clauses. The first

of these clauses pledged “all the shares and deposits in all your

individual and joint accounts with the credit union now and in the

future2” as additional collateral for the loan. Pursuant to the

Truth in Lending disclosure requirements, the Note refers to this

cross-collateralization of accounts clause with the disclosures on

the front of the Note.

The second cross-collateralization clause was a “future

advance clause” that read:

The security interest secures the loan
described in the Truth in Lending Disclosure
and any extensions, renewals or refinancings
of the loan. It also secures any other loans
you have with the credit union now or in the
future and any other amounts you owe the
credit union for any reason now or in the
future. If the property description is marked
with one star (*), or the property is
household goods as defined by the Credit
Practice Rule, the property will secure only
this loan and not other amounts you owe.

On the front of the Note in a box marked “Security Offered,” the

1
The LoanLiner Note and Disclosure Statement is a preprinted
form that includes a promissory note, a number of federally
required disclosure statements, and a security agreement.
2
At approximately the same time that Debtor took out the car
loan, he opened a checking account with Community Credit.

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parties listed the automobile by year, make, model and Vehicle

Identification Number. The parties did not mark this description

with a star. There is no reference to this future advance clause

in the Truth in Lending disclosures on the front of the Note.

In July of 1992, Debtor responded to a MasterCard solicitation

from Community Credit by signing and returning a written request

for a MasterCard account. Community Credit issued a MasterCard to

Debtor, which he received and used for personal, not business,

purchases.

In early October of 1995, Debtor paid off the balance of the

initial car loan. At this time, Debtor sought to have Community

Credit turn over the title to him. Community Credit refused,

noting that Debtor owed a substantial sum on his Community Credit

MasterCard3 and that therefore the future advance clause gave it a

valid lien on the vehicle.

On November 2, 1995, Debtor filed a Petition for Relief under

Chapter 7 of the United States Bankruptcy Code. Three months

later, Debtor filed with the bankruptcy court a Complaint to

Determine Extent and Validity of Lien, asking that the court

declare the security interest void and unenforceable as to the

MasterCard debt. The bankruptcy court ruled that the application

of the future advance clause did not comport with the clear intent

of the parties and that therefore Community Credit did not have a

3
The record does not indicate the exact amount of indebtedness
at the time of Debtor's demand. The testimony before the
bankruptcy court indicates that at the time of trial the principal
amount owed was $7,158.64.

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valid lien on the vehicle. See In re Conte, 217 B.R. 767, 772

(Bankr. E.D. Tex. Jan. 26, 1998). According to the bankruptcy

court, the absence of any reference to the future advance clause on

the front of the document suggested that the potential attachment

of a lien based upon future indebtedness was not reasonably within

the contemplation of the parties at the time of contracting and was

therefore unenforceable. See id. at 771. In coming to this

conclusion the bankruptcy court emphasized that the LoanLiner form

referred to the cross-collateralization of accounts clause in both

the Truth in Lending disclosures on its front and in the listing of

the terms on its back while it referred to the future advance

clause only on its back.4 See id. Community Credit appealed to

the district court, which summarily affirmed the bankruptcy court's

reasoning and ruling. Community Credit now asks us to determine

whether the future advance clause in the Note is sufficient to

create a security interest in the subject vehicle with respect to

Debtor's MasterCard indebtedness. We believe that it is.

DISCUSSION

In a bankruptcy context we review findings of fact for clear

error and conclusions of law de novo. See Matter of Walden, 12

F.3d 445, 448 (5th Cir. 1994). Interpretations of unambiguous

contract language are questions of law subject to de novo review.

See Kimbell Foods, Inc. v. Republic Nat'l Bank, 557 F.2d 491, 495

4
In a footnote to its opinion the bankruptcy court noted that
it did “not consider whether or mean to imply that [Community
Credit] has not complied with Truth in Lending regulations . . .
Whether or not the Truth in Lending regulations were complied with
is not at issue.” Conte, 217 B.R. at 770, n. 1.

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(5th Cir. 1977), aff'd 440 U.S. 715 (1979).

Section 9.204(c) of The Texas Business and Commerce Code

recognizes the validity of future advance clauses by noting 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.” TEX. BUS. & COMM. CODE § 9.204(c)

(1973). Texas courts do not recognize the application of a future

advance clause unless the future advance to be secured was

reasonably within the contemplation of the parties to the agreement

at the time that it was made. See Kimbell, 557 F.2d at 495;

Western Auto Supply Co. v. Brazosport Bank of Texas, 840 S.W.2d

157, 159-60 (Tex. App.--Houston [1st Dist.] 1992; no writ). We

look to the language of the contract, unless ambiguous, to

determine the intention of the parties. Consistent with the parol

evidence rule, it is this written objective evidence of intent, not

the parties' subjective understandings, that controls our analysis.

See Kimbell, 557 F.2d at 495.

The Note clearly indicates that the automobile may serve as

collateral for future indebtedness to Community Credit incurred by

the Debtor. The placement of the clause is irrelevant as long as

it conforms to the Truth in Lending requirements. Because the

parties did not litigate the validity of the Truth in Lending

disclosures, this issue is not properly before us. Accordingly,

based upon the plain language of the written agreement between the

parties we conclude that the application of the future advance

clause was within the parties' contemplation at the time that they

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signed the Note and that Community Credit therefore maintains a

valid lien on the Debtor's automobile.

For the foregoing reasons, we REVERSE the district court's

judgment and RENDER judgment in favor of Community Credit.

REVERSED AND RENDERED

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