Opinion ID: 427030
Heading Depth: 2
Heading Rank: 1

Heading: The Effect of the Future Advances Clause.

Text: 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.