In re Bass

• Decision Date: 02 November 1984
• Docket Number: Bankruptcy No. 7-84-00267 MA.
• Citation: 44 BR 113
• Parties: In re George W. BASS and Patsy Bass, Debtors.
• Court: U.S. Bankruptcy Court — District of New Mexico

44 B.R. 113 (1984)

In re George W. BASS and Patsy Bass, Debtors.

Bankruptcy No. 7-84-00267 MA.

United States Bankruptcy Court, D. New Mexico.

November 2, 1984.

Patricia J. Frieder, Albuquerque, N.M., for debtors.

Bill J. Sholer, Albuquerque, N.M., for trustee.

John M. Kulikowski, Albuquerque, N.M., for First Interstate Bank of Albuquerque.

MEMORANDUM OPINION

MARK B. McFEELEY, Bankruptcy Judge.

This matter came before the Court on the motion of First Interstate Bank to lift the automatic stay. The issue in the case is whether the mortgage on the residence of Mr. and Mrs. Bass, executed to First Interstate Bank, can be extended to provide security for a pre-existing business debt and a subsequent business debt by virtue of a dragnet clause and future advance clause in that mortgage.

Mr. and Mrs. Bass own the majority of stock in C.A.T. Distributors, Inc., (C.A.T.) a New Mexico corporation which is also in bankruptcy. On November 17, 1982, C.A.T. executed a commercial promissory note to First Interstate Bank in the amount of $43,652.00. This note was secured by accounts receivable, inventory and parts. Mr. and Mrs. Bass also executed personal guarantees for the C.A.T. debt on November 17, 1982. These guarantees had an upper stated unit of $75,000.00.

On December 10, 1982, Mr. and Mrs. Bass executed a promissory note to the bank in the amount of $19,748.24 (The Bass Note). The Bass note is secured by a real estate mortgage on their residence. The Bass Note has been reduced to a balance of approximately $15,900.00.

The real estate mortgage contains a dragnet clause and a future advances clause. A dragnet clause is a provision in a mortgage in which the mortgagor gives security for past and future advances as well as present indebtedness. Uransky v. First Federal Savings and Loan, 684 F.2d 750 (11th Cir.1982). The dragnet clause in the mortgage states:

This mortgage is also to be and continue to be, from time to time, security for the payment of any sums of money owed by Mortgagor to Bank on the date hereof in excess of the indebtedness evidenced by the promissory note referred to herein and also security for the payment of such sum or sums of money as Mortgagor may from time to time in the future owe to Bank, and if Mortgagor be more than one person, for such sums as any person embraced within the term mortgagor may individually owe to Bank, either on account, on commercial paper, for overdrafts, for money loaned, for renewal of notes, and upon any other obligation, whatsoever may be the nature of the same or howsoever the same may be contracted by any such person individually with the Bank, including all obligations of any such person jointly with any other person or persons as co-partners, sureties, guarantors or otherwise, co-partners, sureties, guarantors or otherwise, together with the interests upon such claims.

The future advance clause, which allows the borrower to borrow additional sums at a future time, secured under the same instrument and by the same real property states,

"Upon request of the mortgagor, the mortgagee may hereafter, at its option, at any time before full payment of this mortgage, makes further advances to the mortgagor, and any such further advance with interest, shall be secured by this mortgage."

Additionally, the promissory note contained a dragnet clause which states,

"All security given herein shall be for the payment of this contract, and all other liabilities and obligations now or hereafter owned by makers to Bank, whether joint, several, contingent, matured or unmatured."

Subsequent to the execution of the mortgage and Bass Note, Mr. and Mrs. Bass executed a commercial promissory note on behalf of C.A.T. (C.A.T. Note 2) in the amount of $55,581.06. The security for this loan was stated as "signed invoices on inventory covered in Letter of Credit $1258." This Note was made on December 1, 1983, and was due on December 12, 1983. On December 6, 1983, Mr. and Mrs. Bass executed a note for $16,000.00 (C.A.T. Note 3) which was secured by accounts receivable and inventory.

The question for the Court is whether the mortgage on the Basses' real property extends to C.A.T. Note 1, executed prior to, the mortgage and/or to C.A.T. Notes 2 and 3, which were executed after the mortgage.

The first inquiry is whether the mortgage can secure C.A.T. Note 1, which preexisted the mortgage, by virtue of the dragnet clause in the mortgage.

The guiding principle in construction of a dragnet clause is the determination of the intent of the parties in view of the particular circumstances and language employed in the mortgage. Whitlock v. Max Goodman & Sons Realty, Inc., 21 B.R. 512 (Bkrtcy.D.Mass.1982). Dragnet clauses which purport to secure all debts, past, present and future,...