In another case pursued by the Virginia League Central Union, In Re: Martin, an important precedent was set in regard to the enforceability of cross collateralization.
In Martin the debtors filed a Chapter 13 bankruptcy case. At the time of the filing the debtors were obligated on three loans to the credit union:
(1) $1,200.00 open end credit agreement (initial loan);
(2) $3,401.01 open end credit agreement for a truck loan (truck loan); and,
(3) $1,386.94 Visa card credit account (Visa loan).
The initial loan documents and the truck loan documents had cross collateralization language stating that collateral given as security for these loans, or for any other loan, would secure all amounts owed to the credit union now or in the future. The Visa application did not contain cross collateralization language. The debtor argued that because the Visa application did not have cross collateralization language and did not refer to the truck, that the truck should not stand as collateral for the Visa loan. The credit union argued that the truck should stand for all three loans.
The Court found the cross collateralization language to be enforceable and effective as to all three loans. The Court held that confirmatory language was not required in the Visa application so long as the original agreement contained cross collateralization language.
One would have to wonder, however, if the result would have been different if the Visa loan had been executed first.
No comments:
Post a Comment