INDUSTRY U P DAT E S
AC T 3 1 3 of 2021
R E S T O R E S P R O C E S S F O R I N C O R P O R AT I N G C R O S S - C O L L AT E R A L I Z AT I O N C L A U S E S by Justin T. Allen Wright, Lindsey & Jennings LLP
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ast year, we reported on the case of Equity Bank vs. Southside Baptist Church, 2020 Ark App. 199 and the impact it had on cross-collateralization clauses in lending documents.
As a refresher, Equity Bank (Bank) was the lender to Southside Baptist Church (Church) on two separate loans: a 2008 loan of $2,600,000 secured by a mortgage on real property owned by the Church (Note 1) and a 2012 loan with a principal amount of about
$150,000 secured by the Church’s furniture, fixtures, inventory, and equipment (Note 2). The church defaulted on the two notes, and the bank filed suit. The parties attended mediation and resolved most of their issues: The church deeded the land to the bank, the parties agreed that the remaining debt associated with Note 2 was $55,000, and the church sold the collateral securing Note 2 for $55,000. The only remaining issue was to which of the two outstanding debts the $55,000 would be applied.
The church filed a motion for summary judgment that the $55,000 should apply to the debt under Note 2. The bank asserted that, due to cross-collateralization language included in Note 2, it had the option to apply the $55,000 to the debt memorialized in Note 1. The circuit court granted the church’s motion for summary judgment and ordered application of the $55,000 to Note 2 after finding that the cross-collateralization clause in Note 2 did not clearly contemplate extending security to the Note 1 debt.
“... the parties agreed that the remaining debt associated with Note 2 was $55,000, and the church sold the collateral securing Note 2 for $55,000. The only remaining issue was to which of the two outstanding debts the $55,000 would be applied.” 10
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SUMMER 2021
