Opinion ID: 784653
Heading Depth: 2
Heading Rank: 1

Heading: When the Neutron Road Property was transferred for purposes of TUFTA.

Text: 17 CTI offers two theories to support its contention that the transfer of the Neutron Road Property occurred on May 13, 1987. First, it insists that the Hypothecation Agreement executed on May 13, 1987, was sufficient to convey title to the Neutron Road Property from CTI to E&GT. In the alternative, CTI insists that the copies of the warranty deed and the purchase agreement it recorded on November 24, 1998, were previously executed on May 13, 1987, and that the 1987 date should control. In response, the government points to numerous CTI corporate documents that appear to not only contradict relevant bank documents, but also the testimony of CTI's own witnesses.
18 In order to determine whether there was a conveyance of the Neutron Road Property from CTI to E&GT on May 13, 1987, we must first establish the legal effect of the Hypothecation Agreement. In the Hypothecation Agreement, CTI pledged the Neutron Road Property as collateral so that First Texas Bank would extend credit to E&GT. The Hypothecation Agreement stated in pertinent part: 19 [F]or the purpose of enabling [E&GT] to obtain credit therefor, ... [CTI hereby certifies that] the said property has been duly assigned, released, transferred, and delivered by [CTI] to [E&GT], and by these presents [CTI] hereby assign[s], release[s], and transfer[s] unto [E&GT] all of [CTI's] right, title, and interest in and to said property, and hereby expressly authorize[s] [E&GT] to pledge or hypothecate all or any part of said property for the indebtedness aforesaid, and all renewals and extensions thereof, and also for any and all other indebtedness of the same borrower to you.... 20 (Emphasis added). 21 The Texas Property Code provides that [a]n instrument that is properly recorded in the proper county is ... notice to all persons of the existence of the instrument. TEX. PROP.CODE § 13.002(1); see also Resolution Trust Corp. v. Kemp, 951 F.2d 657, 661 (5th Cir.1992). Texas law extends this principle further, recognizing that an instrument properly recorded is notice, not only of facts therein expressly set forth, but also of all other material facts which an inquiry thereby reasonably suggested would have disclosed. Housman v. Horn, 157 S.W. 1172, 1173 (Tex.Civ.App.1913) (citation omitted); see also Westland Oil Dev. Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 908 (Tex.1982) (It is well settled that a purchaser is bound by every recital, reference and reservation contained in or fairly disclosed by any instrument which forms an essential link in the chain of title under which he claims.) (internal quotations and citations omitted); Lang v. City of Nacogdoches, 942 S.W.2d 752, 758 (Tex.App. — Tyler 1997, writ denied) ([A] person is charged with constructive notice of the actual knowledge that could have been acquired by examining public records, and that constructive notice in law creates an irrebuttable presumption of actual notice.). 22 CTI contends that the government should be charged, as a matter of law, with constructive knowledge of the contents of the Hypothecation Agreement and with all other facts that a follow-up inquiry would have revealed. Matter of Estate of Matejek, 928 S.W.2d 742, 744 (Tex.App. — Corpus Christi 1996, writ denied); see also Resolution Trust Corp., 951 F.2d at 660-61. The government's response has two elements. First, it argues that the Hypothecation Agreement simply did not function to transfer title. The government relies on the general principle that a hypothecation agreement is a pledge, i.e., an encumbrance rather than a deed translative of title or ownership. Second, the government contends that whether the Hypothecation Agreement gave constructive notice of the transfer is an issue of fact, not law. 23 As a general matter, the government is correct in its assertion that to hypothecate is to pledge (property) as security or collateral for a debt, without delivery of title or possession. BLACK'S LAW DICTIONARY 747 (7th ed. 1999) (alteration in original). However, whether a hypothecation necessarily involves delivering title or possession does not appear to address the fact that even a pledge could fall under TUFTA's definition of transfer. TUFTA defines transfer broadly to include every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance.  TEX. BUS. & COMM.CODE § 24.002(12) (emphasis added). Even if the Hypothecation Agreement could not transfer title to the Neutron Road Property, the encumbrance created by the Hypothecation Agreement may well have been a transfer under TUFTA. 24 However, before we address whether a hypothecation is a transfer under TUFTA, we must first determine the true meaning and scope of the Hypothecation Agreement at issue here. In construing a contract under Texas law, courts must examine and consider the entire writing and give effect to all provisions such that none are rendered meaningless. Int'l Turbine Servs., Inc. v. VASP Brazilian Airlines, 278 F.3d 494, 497 (5th Cir.2002). There are two steps to an ambiguity analysis of a contract. Flagship Hotel, Ltd. v. City of Galveston, 117 S.W.3d 552, 561 (Tex.App. — Texarkana 2003, writ denied). First, a court applies the applicable rules of construction and decides if the contract is ambiguous. Id. If the court finds the contract is ambiguous, the trier of fact considers the parties' interpretation and other extraneous evidence. Id. 25 CTI certified in the Hypothecation Agreement that the Neutron Road Property was duly assigned, released, transferred, and delivered by CTI to E&GT, adding that CTI assigned, released, and transferred to E&GT all of [CTI's] right, title, and interest in and to said property. On its face, this portion of the instrument appears to fully contemplate an absolute transfer of the Neutron Road Property from CTI to E&GT. However, when read with the provision immediately following the above statement, this conclusion is called into doubt. The next provision of the Hypothecation Agreement states that CTI hereby expressly authorize[s] [E&GT] to pledge or hypothecate all or any part of said property for the indebtedness aforesaid. If CTI had truly transferred the Neutron Road Property to E&GT outright, then CTI's express authorization to E&GT to pledge or hypothecate the Neutron Road Property as collateral for future loans would certainly be unnecessary. It seems odd to transfer all right, title, and interest in real property to someone and at the same time expressly authorize that person to do certain things with the property after the transfer has been effectuated. In addition, the Hypothecation Agreement provides that E&GT may pledge the Neutron Road Property as collateral for any and all indebtedness it seeks to create at any time before this authorization shall have been revoked in writing. CTI's retention of a power to revoke further indicates that the Hypothecation Agreement was not intended to be an outright conveyance of the Neutron Road Property. 26 Although CTI contends that the Hypothecation Agreement served to transfer the Neutron Road Property to E&GT, a simple reading of the instrument reveals that it is susceptible to more than one interpretation. As such, an ambiguity exists as to the meaning and scope of the Hypothecation Agreement. Therefore, to determine the legal effect of the instrument, it becomes necessary to look at the intent and conduct of the parties. 27 As noted previously, CTI argues that it sold the Neutron Road Property to E&GT on May 13, 1987. However, it was not until November 23, 1998, that the corresponding warranty deed and purchase agreement reflecting this transfer were recorded in the Dallas County Clerk's Office. Substantial evidence shows that, in these intervening eleven years, CTI held itself out as the owner of the Neutron Road Property. For instance, government tax records show CTI as the owner of the Neutron Road Property as late as December 1998. Specifically, during the period from 1987 to 1998, both the Dallas County Appraisal District and the Dallas County Tax Collector issued property tax statements to CTI as owner of the Neutron Road Property. In addition, on November 24, 1993, CTI, through Zimmerman, executed a deed of trust, security agreement, an assignment of rent, and a financing statement involving the Neutron Road Property to secure the indebtedness and obligations therein to CIT Group/Credit Finance, Inc., another creditor. This deed of trust was filed of record with the Dallas County Clerk's Office on December 7, 1993. Moreover, on April 23, 1997, CTI, through Zimmerman, executed a deed of trust to secure a promissory note payable to First Texas Bank. This deed of trust was filed of record with the Dallas County Clerk's Office on June 5, 1997. 28 Based on the terms of the Hypothecation Agreement and the conduct of CTI and E&GT after executing the agreement, we interpret the Hypothecation Agreement as simply being a pledge from CTI to E&GT as collateral for obtaining future loans and not as an instrument conveying title to E&GT.
29 In the alternative, CTI claims that although the warranty deed and purchase agreement were recorded in November 1998, both instruments were actually executed on May 13, 1987. Therefore, CTI argues that title to the Neutron Road Property was passed from CTI to E&GT on the date of execution, not the date of recordation. 30 At trial CTI was unable to satisfactorily explain to the jury why it had two different, but executed, versions of each document dated May 13, 1987. Examination of the two copies of the warranty deed and the two copies of the purchase agreement reveal that the signatures and text alignment are different. In addition, the notary blocks bear different and inconsistent dates for expiration, and one version of the notary block is handwritten whereas the other is typed. CTI also failed to explain how the title company it claimed had gone bankrupt managed to properly file and record the deed of trust, transfer of lien, and Hypothecation Agreement, but failed to file and record the warranty deed and purchase agreement when all five instruments were allegedly executed simultaneously on May 13, 1987. 31 CTI fails to direct this Court to any compelling evidence indicating that E&GT has been the owner of the Neutron Road Property since May 1987, or conversely, that CTI was not the owner of the property from 1987 to 1998. Therefore, we conclude that evidence clearly shows that CTI was the owner of the Neutron Road Property until at least November 23, 1998.