Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or perform any legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.
By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.comIn re Matrix Development Corporation
Oregon Bankruptcy Court Case No. 08-32798
October 9, 2008
UNPUBLISHED
This unpublished letter opinion of last Thursday by Judge Trish Brown addresses the question whether the Chapter 11 corporate debtor's debts to a creditor bank were cross-collateralized. The debtor had entered into multiple promissory notes and trust deeds at different times with the bank, although each contained the same pertinent language, which included cross-collateralization clauses. Each trust deed also had language specifying the obligations secured by that trust deed. This letter opinion is an exercise in contractual interpretation, and to a large extent the judge's decisions turn on the contractual language particular to the case; indeed excerpts from the loan agreements and trust deeds took nearly two pages of the seven page letter.
But Judge Brown did make two rulings of more general application.
First as to the cross-collateralization of future obligations entered into after the trust deeds were recorded: Since a specific provision of a contract controls over an inconsistent general provision, where a series of trust deeds provided that all past, present, and future obligation of debtor were secured by each trust deed, but one clause stated to the contrary that a future obligation was secured by a trust deed only if the obligation specifically stated it was secured by that particular trust deed, since none of the subsequent obligations met that requirement they were not secured by any of the pre-existing trust deeds.
And second as to the cross-collateralization of prior, antecedent obligations: Although there was no specific provision to contradict the general provision granting that each trust deed secured pre-existing obligations, under Oregon law these obligations were still not secured by the trust deeds because of a Judge Radcliffe opinion, In re Wollin, 249 B.R. 555 (Bankr. D. Or. 2000), on such "dragnet" clauses, which stated that antecedent debt must be specified in the subsequent security instrument in order for the debt to be secured by it. The bank tried to distinguish this Wollin opinion as one involving a consumer loan in contrast to the commercial context at issue, but Judge Brown disagreed, stating that Judge Radcliffe's rational "is equally applicable in the commercial context." She also noted that all the loan agreements and trust deeds here were entered into after Wollin so
But Judge Brown did make two rulings of more general application.
First as to the cross-collateralization of future obligations entered into after the trust deeds were recorded: Since a specific provision of a contract controls over an inconsistent general provision, where a series of trust deeds provided that all past, present, and future obligation of debtor were secured by each trust deed, but one clause stated to the contrary that a future obligation was secured by a trust deed only if the obligation specifically stated it was secured by that particular trust deed, since none of the subsequent obligations met that requirement they were not secured by any of the pre-existing trust deeds.
And second as to the cross-collateralization of prior, antecedent obligations: Although there was no specific provision to contradict the general provision granting that each trust deed secured pre-existing obligations, under Oregon law these obligations were still not secured by the trust deeds because of a Judge Radcliffe opinion, In re Wollin, 249 B.R. 555 (Bankr. D. Or. 2000), on such "dragnet" clauses, which stated that antecedent debt must be specified in the subsequent security instrument in order for the debt to be secured by it. The bank tried to distinguish this Wollin opinion as one involving a consumer loan in contrast to the commercial context at issue, but Judge Brown disagreed, stating that Judge Radcliffe's rational "is equally applicable in the commercial context." She also noted that all the loan agreements and trust deeds here were entered into after Wollin so
[a]s of the time the documents were executed, that under Oregon law antecedent debt would only be secured by an after acquired security interest if the documents evidencing the security interest specifically identified that antecedent debt. Despite that fact, the Bank chose not to identify any specific antecedent debt in any of the deeds of trust it obtained from the Debtor. Accordingly, none of the antecedent debt is secured by any of the deeds of trust.
by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com
Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.
© 2008 Bankruptcy Litigation Support for Attorneys
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