Case Summary:
Debtors challenged claim of First American Credit Union (“FACU”). At issue is whether a car pledged as security for a direct loan also secured a credit card debt by virtue of a dragnet clause in the loan contract. Both parties moved for summary judgment based on stipulated facts. Debtors made three arguments: that FACU never explained the meaning of the dragnet clause in the contract; that they did not read the dragnet clauses and had no intention of pledging the car as security for the credit card debt, and that the dragnet clauses in the Rules and car loan contract "were in boilerplate fine print." FACU countered that the dragnet clauses were customary and ordinary provisions and that debtors’ intent to pledge the car as security interest for the credit card debt is evident from the fact that debtors received the Rules and signed the car loan contract, both of which included dragnet clauses. FACU further argued that it had no obligation to explain the meaning or effect of the dragnet clauses to debtors. It was determined that the intent of debtors to grant FACU a security interest in the car for other debts is evident from the clear language of the dragnet clauses in the Rules and the car loan contract.

Key Terms:
Security Interests - Creation
Summary Judgment