Opinion ID: 1778532
Heading Depth: 1
Heading Rank: 7

Heading: UMB's Right of Set-off under the Assignments

Text: ¶ 27. Finally, UMB claims that it had a right of set-off pursuant to the assignments executed by Jerry Wallace on February 21, 1989. Each of these forms, entitled Assignment of Time/Savings Account, assigned all right, title and interest of the undersigned in each of the accounts for the purpose of securing payment of each and every debt, liability or obligation of every type or description which any of the undersigned may now or at any time hereafter owe to the Depository Institution, whether such debt, liability or obligation now exists or is hereafter created or incurred,.... If said account is evidenced by a certificate of deposit, the foregoing assignment shall be construed as a grant of a security interest, subject to the extent applicable to the Uniform Commercial Code of the state wherein this agreement is signed. Each of the assignments was signed individually by Jerry Wallace. ¶ 28. Texie Rae Wallace argues that there is no mention of any specific antecedent debt in either of the assignments, and thus the bank wrongly assumed that the assignments allowed it to dragnet all debt, including that which existed before the assignments were executed. [7] She argues that this Court's holding in Merchants Nat'l Bank v. Stewart, 608 So.2d 1120 (Miss.1992) established the rule that antecedent debts will not be deemed within a dragnet clause unless they are specifically identified in the instrument. We note that this is an overstatement of the holding in Stewart, although at least one other court has cited the case for the same proposition. See In re Lewis, 212 B.R. 827, 829 (Bankr.E.D.Va.1997). ¶ 29. In Stewart, this Court considered the scope of a hypothecation agreement containing a dragnet provision. The case involved the sale of a farm by the Stewarts to their son and son-in-law, who agreed that the purchase price would include a balance of $400,000.00 on the original purchase still owed by the Stewarts plus the assumption of a small business loan in the amount of $108,000.00. Stewart, 608 So.2d at 1122-23. A series of transactions then took place on the same day. First, the son and son-in-law each executed a deed of trust in favor of the elder Stewarts in the amount of $170,000.00 for the purchase of land. Second, the son and son-in-law signed a second deed of trust in favor of the bank. This secured a note for the remainder of the purchase money, which was also guaranteed by the Farmers' Home Administration. Third, the son and son-in-law signed notes for crop production and irrigation loans. Finally, the elder Stewarts signed a hypothecation agreement in favor of the bank to collateralize these crop and irrigation loans. The security given by the Stewarts was an assignment of the first deeds of trust owed to them by the son and son-in-law. Id. at 1125. ¶ 30. The issue before the Court was whether the hypothecation agreement, executed for the purpose of securing the crop and irrigation loans, also covered the note for the purchase money secured by the second deed of trust. Id. The bank relied upon a dragnet clause in the agreement which granted the bank a security interest in said property to secure payment of such loan or loans, including but not limited to loans made under said line of credit, and all renewals and extensions thereof without limitation, including any loans that may be over said line of credit, and also for any and all other indebtedness of Borrower to you, created at any time before you shall have received written notice from me terminating this Hypothecation Agreement and all renewals and extensions thereof. Id. at 1125 n. 4 (emphasis supplied by the Stewart Court). ¶ 31. In determining whether the dragnet clause encompassed existing debt, the Court in Stewart relied upon various general principles of law. As an initial matter, it noted that the intent of the parties at the time the agreement is drafted is crucial in matters of contract interpretation. See id. at 1126. See also Newell v. Hinton, 556 So.2d 1037, 1042 (Miss.1990); Roberts v. Roberts, 381 So.2d 1333, 1335 (Miss.1980). If the document is clear and unambiguous as to the collateral securing other debts we have found intent to secure these debts. Stewart, 608 So.2d at 1126 (citing Newton County Bank, Louin Branch Office v. Jones, 299 So.2d 215, 218 (Miss.1974) and Trapp v. Tidwell, 418 So.2d 786, 792 (Miss.1982) ([t]here is no question that dragnet clauses are enforceable if properly executed and stated in clear and unambiguous language.)). Stewart implicitly holds that where an agreement employs broad language which purports to secure all debts of a borrower, but does not specifically list existing debt, then the agreement is ambiguous as to whether the antecedent debt is secured by the agreement. ¶ 32. In such cases certain principles must be applied to determine the intent of the parties. First, it must be considered whether the dragnet clause employed in the agreement is boilerplate. The Stewart Court noted that [o]ften these clauses are not discussed between the borrower and the lender so that the borrower is not aware of the existence or the effect of these clauses. Stewart, 608 So.2d at 1126 (citing United States v. American Nat'l Bank, 255 F.2d 504 (5th Cir.1958); Matter of Ladner, 50 B.R. 85 (Bankr.S.D.Miss.1985); First Sec. Bank v. Shiew, 609 P.2d 952, 957 (Utah 1980); Underwood v. Jarvis, 358 So.2d 731 (Ala.1978); Mohler v. Buena Vista Bank & Trust Co., 42 Colo.App. 4, 588 P.2d 894 (1978)). Second, the nature of the secured debt must be examined to determine the validity of the dragnet clause with respect to other debt. Where the debt which the lender seeks to have included under the dragnet clause is different in kind from the primary debt secured by the agreement, it is less likely that it was intended to be encompassed by the agreement. Stewart, 608 So.2d at 1126 (citing Mark Twain Kansas City Bank v. Cates, 248 Kan. 700, 810 P.2d 1154 (1991); Shiew, 609 P.2d at 957-58; Wong v. Beneficial Sav. and Loan Ass'n, 56 Cal.App.3d 286, 128 Cal. Rptr. 338, 342 (1976)). Third, heavy emphasis is placed on the fact that the antecedent loans are not listed in the agreement. The rationale for excluding antecedent loans is that they are known to the lender at the time the agreement is drafted and should be included, if there is an intent to do so, since those loans are easily identifiable. Stewart, 608 So.2d at 1126 (citing Lundgren v. National Bank of Alaska, 742 P.2d 227, 235 (Alaska 1987); First Nat'l Bank & Trust Co. v. Lygrisse, 231 Kan. 595, 647 P.2d 1268, 1272-73 (1982); Jarvis, 358 So.2d at 735; Kamaole Resort Twenty-One v. Ficke Hawaiian Investments, 60 Haw. 413, 591 P.2d 104, 112 (1979)). Finally, this Court will consider whether the debt which the lender seeks to have included under the dragnet clause is otherwise fully secured. Id. at 1127. ¶ 33. Applying these principles, the Stewart Court held as a matter of law that the dragnet provision of the hypothecation agreement did not encompass the second mortgages. Id. at 1126. The Court determined that the language used in the agreement was boilerplate, in that the agreement was a standard form used by the bank. The primary debt secured by the agreement was a line of credit to be used for crop production and irrigation, and was different in nature from the loans made to purchase the land. Id. at 1126-27. The bank was clearly aware of the antecedent debt which it sought to include under the dragnet provision, and could have easily and explicitly included it within the agreement. Id. at 1126. Finally, the Court noted that the fact that the antecedent debt was otherwise fully secured further indicated that it was not intended to be included under the hypothecation agreement. Id. at 1127. ¶ 34. In the instant case, the circumstances present a closer question because of the second Stewart factor. On the same day he executed the assignments, Jerry Wallace took two business loans from UMB evidenced by note numbers 6816482 and 6843940. He pledged the CDs for these notes. The two loans were also secured by the assignments, however, as clearly stated on the face of the notes. Thus, the primary debt for which the assignments were executedthe two business loansare of the same nature as the debts which UMB seeks to include under the dragnet clause. ¶ 35. All of the other Stewart factors, however, support a finding that the assignments do not include the antecedent debt evidenced by the notes numbered 6831523, 6873913, 6877617 and 6888036. As in Stewart, the dragnet language used by UMB in the assignments was boilerplate in nature as the assignments were on a standard form used by the bank. Moreover, there is no question that UMB was aware of the antecedent debt. These loans were taken out directly from UMB within the six-month period preceding Jerry Wallace's death. Thus, there is no excuse for UMB's failure to specifically include these loans within the assignments if it intended them to be encompassed by the assignments. Finally, all four of the loans were otherwise secured. The notes numbered 6831523 and 6873913 were secured by a Security Agreement granting the bank a security interest in all chattel paper owned by Jerry Wallace, as well as a Trust Receipt granting the bank a security interest in certain trailer homes worth over $30,000.00. The notes numbered 6877617 and 6888036 were secured by the base note, which was in turn secured by all new and used mobile homes owned by Wallace Mobile Homes. ¶ 36. Written instruments are to be construed narrowly against the drafter when there is uncertainty or ambiguity as to the intent of the parties. Id. at 1126. See also Clark v. Carter, 351 So.2d 1333, 1336 (Miss. 1977); Stampley v. Gilbert, 332 So.2d 61, 63 (Miss.1976). We conclude, therefore, that under these circumstances the dragnet clause in the assignments does not encompass the antecedent debt.