Opinion ID: 427030
Heading Depth: 1
Heading Rank: 4

Heading: Magnum's Defense

Text: 18 Magnum argues that it would have presented evidence going to two contractual defenses: (1) that the future advances clause in the deed of trust executed at the time of the $10,000 loan does not render the real estate security for the $350,000 line of credit, and (2) even if the future advances clause does make the land security for the line of credit, misrepresentations by SBA officials estop the SBA from relying on any such lien. 19
20 Magnum argues that it would have put forward several defenses--all of which are variants on a single theme: whether the future advances clause renders Magnum's real estate security for the SBA-guaranteed line of credit. Specifically, Magnum asserts that Magnum fully paid the amount of the first note, that the Bank did not validly assign the first note and the lien on real estate to the SBA, that the $350,000 line of credit constituted a contractual modification of the $10,000 note, and that the parties to the $10,000 note did not contemplate the SBA-guaranteed line of credit at the time that they entered into the $10,000 loan agreement and therefore that the future advances clause in the deed executed at that time is of no effect with regard to the line of credit. 21 A moment's reflection reveals that all these arguments depend on the outcome of the last: if the lien resulting from the deed of trust secured the second note, payment of the first note would not have discharged the lien; if the lien secured the second note, the assignment of the first note and the deed of trust was proper because the security would follow the debt under Texas law, see, e.g., Lawson v. Gibbs, 591 S.W.2d 292, 294 (Tex.Civ.App.1979); if, on the face of the loan documents (including the second note), the court properly found that the first lien secured the line of credit, Magnum could scarcely prove by evidence of negotiations carried on between the signing of the first and second notes that the second note modified the first. 10 We turn, therefore, to the determinative question: does the future advances clause in the deed of trust, construed with the second note, render the real estate security for the second note? 22 In determining what the parties contemplated, and thus what the effect of the future advances clause would be, the district court looked exclusively to the language of the agreements and declined, on the grounds that the instruments were unambiguous, to consider evidence of the subjective intent of the parties. This approach is as correct under Texas law as it is under general principles of contract law. Although evidence of the subjective intentions of the parties may be admitted to explain a contract that is susceptible to more than one reasonable interpretation, Watkins v. Petro-Search, Inc., 689 F.2d 537, 541 (5th Cir.1982), the Texas parol evidence rule--a rule of substantive law and not merely of evidence--bars resort to evidence of the intent of the parties where the language of the agreement is clear. 11 Id. at 538; Sun Oil v. Madeley, 626 S.W.2d 726, at 727-28, 731 (Tex.1981); R & P Enterprises v. La Guarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 519 (Tex.1980). Kimbell Foods, Inc. v. Republic National Bank, 557 F.2d 491, 496 (5th Cir.1977), aff'd 440 U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979). The language of the contract provides the clearest indication of the intent of the parties absent an ambiguity in that language. Whether the contract language is ambiguous is a question of law. See Watkins v. Petro-Search, Inc., 689 F.2d at 538 (applying Texas law). 23 The two clauses, the first in the deed of trust 12 and the second in the SBA-guaranteed note, 13 bear only one reading. The future advances clause on its face applies to any future advance from the Bank to Vahlco; the SBA-guaranteed note is such an advance. The future advances clause stipulates expressly that any additional security given for future loans shall not alter the lien arising from the deed of trust. The SBA-guaranteed note expressly provides that security for that loan is not limited to the retainage accounts, the inventory and the SBA guarantee. The trial court therefore correctly excluded evidence of the subjection intention of the parties. 14 See also Kimbell Foods, 557 F.2d at 495 (as a matter of law, subsequent extension of credit by the same lender is reasonably within the contemplation of the parties to the mortgage at the time it was made). 24 In its reply brief, Magnum asserts (for the first time) that the parol evidence rule does not apply because the parol evidence rule does not bind strangers to a contract, Quintero v. Citizens and Southern Factors, 596 S.W.2d 277, 280 (Tex.Civ.App.1980), and Magnum was not a party to the original note or deed of trust. However, as Vahlco's successor in title to the property covered by the deed of trust, 15 Magnum is so closely affiliated with Vahlco it may not be deemed a stranger to the contract, Peters v. Lerew, 139 S.W.2d 321, 327 (Tex.Civ.App.1940), error dismissed; see Ragland v. Curtis Mathes Sales Co., 446 S.W.2d 577, 578 (Tex.Civ.App.1969) (person who is alter ego of party, beneficiary of contract or in privity with party is not a stranger to the contract). 16 25 Since we find that the trial court was correct in determining that the lien created by deed of trust secured the line of credit as a matter of law, we conclude that Magnum's asserted defense of payment, contractual modification, invalid assignment and inapplicability of the lien to the second loan were insufficient as a matter of law, and the trial court did not err in excluding evidence on these issues.
26 Magnum also argues that it would have offered evidence supporting an estoppel defense based on misrepresentations by SBA officers. Before the parties entered the transaction, an SBA Loan Officer allegedly told Vahlco that the SBA would leave Vahlco's fixed assets unencumbered. 17 Nevertheless, the SBA sought and obtained an assignment of the first note and the deed of trust after the Bank assigned to the SBA the note it had guaranteed. (At the time, the retainage accounts that had secured the $350,000 note had, in the SBA's opinion, become uncollectible because they were tied up in litigation over Vahlco's failure to complete the Houston construction contracts.) 27 At trial the district court denied this defense as a matter of law, informing counsel for Magnum that he could not raise estoppel against the United States under the facts of the case. However, in its memorandum opinion the trial court rejected the estoppel defense on other grounds: that the defense was available only to a party to the SBA-guaranteed loan and therefore not available to Magnum. We conclude that the district court was correct in its initial reasoning and in its result, but that the grounds articulated in its written opinion are faulty. 18 We therefore affirm on the grounds orally given by the district court at trial--that Magnum may not raise estoppel against the United States on these facts. 28 Decisions of the Supreme Court and of this Court make clear that estoppel can rarely be asserted against the government. See, e.g., Schweiker v. Hansen, 450 U.S. 785, 788-89, 101 S.Ct. 1468, 1470-71, 67 L.Ed.2d 685 (1981) (lack of affirmative misconduct bars asserting estoppel defense against government). In the context of SBA-guaranteed loans, this court has recently held that the United States is not bound by actions of its agents that exceed the scope of their authority--specifically, misrepresentations regarding financial instruments to which the SBA is a party. United States v. R. & D. One Stop Records, 661 F.2d 433 (5th Cir.1981). In R. & D., guarantors of an SBA promissory note argued that the SBA officer had told them that despite the language of the guarantee no individual recourse against the guarantors was envisioned and that the SBA was therefore estopped from collecting on the guarantee. This Court looked to the express language of the guarantee alone to determine the obligations of the guarantors and dismissed the estoppel argument on the grounds that the possible misrepresentations by the SBA representative are of no help to the guarantors, since any representation that the express language of the instrument would not be determinative of the guarantors' obligations was beyond the scope of the agent's authority. R. & D., 661 F.2d at 434-35, citing, inter alia, Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947). 29 Taking Magnum's assertions as to the SBA officer's statements as true, all that happened here was that the officer, ignorant of the terms of the contract between Vahlco and the Bank, stated that the SBA would not on its own initiative require fixed assets as security to guarantee the line of credit. However, those assets had already been made security for the line of credit by the terms of the written instruments embodying the contract between the Bank and Vahlco. As successor to the Bank's interest in that transaction, the SBA is entitled to the benefit of the terms the Bank negotiated--regardless of whether an SBA officer may have indicated that the SBA might have consented to other terms in some hypothetical transaction where no future advances clause already created a lien on the property. 30 As the district court found, the language of the instruments unambiguously establishes that the property secures the line of credit. The SBA is as much entitled to that security as the Bank was. There was no error in precluding evidence on Magnum's estoppel defense. 31 Since the defenses on which Vahlco and Magnum sought to offer evidence were as a matter of law not meritorious, defendants' substantial rights were unabridged by any error in prematurely granting a directed verdict. The judgment below is therefore 32 AFFIRMED.