In re Howard v. Whitesville Credit Union

On May 29, 1998, Michael Howard obtained a loan (the first loan) from Whitesville Community Credit Union (Credit Union) (defendant) to finance the purchase of a 1998 Ford XLT pick-up truck (1998 Ford pick-up). Howard signed a promissory note and pledged the 1998 Ford pick-up as collateral. The security agreement for the first loan contained a future-advances clause, which provided that any collateral securing other loans with Credit Union could also secure the first loan. On May 3, 2001, Howard and his wife (plaintiffs) obtained a loan from Credit Union (the second loan) to finance the purchase of a 1999 Pontiac Transport Montana (1999 Pontiac). The Howards signed a promissory note and pledged the 1999 Pontiac as collateral. The security agreement for the second loan contained the same future-advances clause. Howard fully paid the first loan on August 31, 2001. However, Credit Union did not release its lien on the 1998 Ford pick-up on the grounds that the Howards entered into the second loan with the future-advances clause while the first loan remained unpaid. The Howards subsequently defaulted on the second loan. Accordingly, Credit Union repossessed both the 1998 Ford pick-up and the 1999 Pontiac. Thereafter, the Howards filed for bankruptcy. During bankruptcy proceedings, the Howards initiated an adversary proceeding seeking the release of Credit Union’s lien on the 1998 Ford pick-up. Both parties moved for summary judgment.