Court Opinion

ID: 6330027
Source: CourtListenerOpinion
Date Created: 2022-04-12 22:25:21.726455+00
Date Added: 2024-06-11T09:22:57.357518
License: Public Domain

In the
                 Court of Appeals
         Second Appellate District of Texas
                  at Fort Worth
               ___________________________
                    No. 02-20-00286-CV
               ___________________________

BENBROOK ECONOMIC DEVELOPMENT CORPORATION, Appellant

                               V.

         THE NATIONAL BANK OF TEXAS, Appellee

             On Appeal from the 67th District Court
                    Tarrant County, Texas
                Trial Court No. 067-317774-20

           Before Sudderth, C.J.; Kerr and Womack, JJ.
                    Opinion by Justice Kerr
                                      OPINION

                                    I. Introduction

      Appellant Benbrook Economic Development Corporation (BEDC) is a

subsequent purchaser of real property. Appellee The National Bank of Texas (NBT)

holds the property’s previous owner’s promissory note and deed of trust, both given

by a third party, as security for an unrelated loan.1 After the previous owner defaulted

on his loan with NBT, NBT filed for judicial foreclosure. BEDC and NBT then filed

cross-motions for summary judgment on their respective rights to the property. The

trial court overruled BEDC’s objections to NBT’s summary-judgment evidence,

granted NBT’s motion, and denied BEDC’s motion. In a single issue briefed as

multiple subissues, BEDC complains that the trial court’s rulings were erroneous.

      To be entitled to judicial foreclosure via summary judgment, the movant must

prove that (1) a financial obligation—such as a promissory note—exists and that the

movant has some privity to it; (2) a lien—such as a deed of trust—secures the

financial obligation; (3) a default on the financial obligation has occurred; and (4) the

property subject to the lien is the same property on which the movant seeks to

enforce the lien. See De La Garza v. Bank of N.Y. Mellon, No. 02-17-00427-CV,

2018 WL 5725250, at *7 (Tex. App.—Fort Worth Nov. 1, 2018, no pet.) (mem. op.);

Mark v. Household Fin. Corp. III, 296 S.W.3d 838, 839 (Tex. App.—Fort Worth 2009,

     The property passed through other hands before ultimately ending up with
      1

BEDC.

                                           2
no pet.); see also Rinard v. Bank of Am., 349 S.W.3d 148, 152 (Tex. App.—El Paso 2011,

no pet.). Because the record contains a fact issue about whether the deed of trust on

the property was discharged, the trial court erred by granting summary judgment in

NBT’s favor. Because the record also reflects that BEDC took ownership of the

property with constructive notice of all the property’s recorded liens and related

instruments, summary judgment was not appropriate for BEDC either.

      Accordingly, we reverse the trial court’s judgment and remand the case for

further proceedings.2

   II. Legal Background: Interplay of Texas Business and Commerce Code
                  Chapters 3 and 9 3 with Real-Property Law

      This case involves the interplay between two systems whose terminology we

review up front: first, the UCC, which generally applies to contracts, personal

property, and notes, and second, real-property law. See David Z. Conoly, Foreclosure on

a Collateral Transfer of Note & Lien, 42 State Bar of Tex. Prof. Dev. Program, Advanced

Real Estate Law Course 26, 26.1 (2020) (observing that when a collateral note itself is

      2
       Based on our disposition here, we do not reach BEDC’s evidentiary subissues.
See Tex. R. App. P. 47.1 (requiring the court to hand down a written opinion that is as
brief as practicable but that addresses every issue raised and necessary to final
disposition of the appeal).
      3
       The Uniform Commercial Code (UCC) identifies its chapters as “articles,”
while the Texas incorporation of the UCC in the Business and Commerce Code uses
“chapters.” For consistency, we will use “chapter” throughout.

                                          3
secured by real property, “the separate worlds of real property Secured Transactions

and personal property Secured Transactions each have a role in the transaction”).

      The property’s original buyers, K&M Collision and its owners Michael and

Elaine Admire, gave the property’s original seller, John Franklin Campbell, 4 a

purchase-money promissory note (the K&M note), a negotiable instrument under

UCC Chapter 3.5

      To secure that note, K&M Collision gave Campbell a vendor’s lien. A

purchase-money vendor’s lien is “a charge imposed by contract to secure payment of

the purchase price of real property.” XTO Energy, Inc. v. EOG Res., Inc., 554 S.W.3d

127, 138 (Tex. App.—San Antonio 2018, pet. granted, judgm’t vacated and remanded

by agr.) (quoting Glenn v. Lucas, 376 S.W.3d 268, 275 (Tex. App.—Texarkana 2012, no

pet.)). Under a vendor’s lien, “legal title does not pass to the vendee. A vendee owns

the equitable interest along with a contract for the purchase of land.” Flag-Redfern Oil

Co. v. Humble Expl. Co., 744 S.W.2d 6, 8 (Tex. 1987); see Disanti v. Wachovia Bank, NA,

No. 2-08-330-CV, 2009 WL 1372970, at *3 (Tex. App.—Fort Worth May 14, 2009,

      4
        Campbell signed various documents in various capacities. We will collectively
refer to him as “Campbell” because capacity was not argued in the trial court.
      5
         To be “negotiable” under UCC Chapter 3, an instrument must be an
unconditional promise to pay a fixed amount of money on demand or at a definite
time, must not contain additional undertakings by the obligor, and must be payable to
bearer or to order when first issued. Adam J. Levitin, The Paper Chase: Securitization,
Foreclosure, and the Uncertainty of Mortgage Title, 63 Duke L.J. 637, 655–56 (2013); see
generally Tex. Bus. & Com. Code Ann. §§ 3.102(a), .104(a), .106.

                                           4
no pet.) (mem. op.). “When an express vendor’s lien is retained to secure unpaid

purchase money, the vendor holds superior title, and the vendee has a mere equitable

right to acquire title by carrying out the agreement.” Dominey v. Unknown Heirs & Legal

Representatives of Lokomski, 172 S.W.3d 67, 73 (Tex. App.—Fort Worth 2005, no pet.).

The purchase contract “is treated as executory between the vendor and vendee and

those holding under them until the purchase money [obligation] is fully satisfied.”

Glenn, 376 S.W.3d at 275 (quoting Bunn v. City of Laredo, 245 S.W. 426, 429 (Tex.

Comm’n App. 1922, judgm’t adopted)).

      Also to secure its note, K&M Collision gave Campbell a deed of trust. A deed

of trust “is a mortgage with a power to sell on default. It is a conveyance of real

property in trust by way of security, defeasible or redeemable at any time prior to the

sale of the property.” 30 Tex. Jur. 3d Deeds of Trust and Mortgages § 2 (2022) (footnotes

omitted); see Johnson v. Snell, 504 S.W.2d 397, 399 (Tex. 1973); see also Fin. Freedom Sr.

Funding Corp. v. Horrocks, 294 S.W.3d 749, 755 (Tex. App.—Houston [14th Dist.]

2009, no pet.) (“The purpose of a deed of trust is to secure to a lender the repayment

of a borrower’s debt.”). “When a mortgagor executes a deed of trust[,] the legal and

equitable estates in the property are severed,” and the mortgagor retains legal title

while the mortgagee holds the equitable title. Flag-Redfern, 744 S.W.2d at 8.

      Campbell used the K&M note and deed of trust as collateral to secure a large

unrelated promissory note that he gave to Pinnacle Bank in exchange for a loan.

Pinnacle later assigned its interest in the K&M note and related documents to NBT as

                                            5
part of Campbell’s collateral to secure NBT’s even larger (but also unrelated)

promissory note from Campbell. Campbell’s promissory note to NBT was a UCC

Chapter 3 negotiable instrument.

      UCC Chapter 3, which applies only to negotiable instruments, is generally

thought of as “payment system” law—but it is also property law for certain payment

and debt instruments, including mortgages, “because of the common-law doctrine

providing that ‘the mortgage follows the note,’ meaning that a transfer of the note

effectuates a transfer of the associated security interest.” Levitin, 63 Duke L.J. at 653,

655. UCC Chapter 3 provides a method for transferring negotiable instruments: if an

instrument is payable to bearer, delivery alone will suffice for negotiation; if the

instrument is payable to the order of an identified person, then negotiation requires

not only delivery but also indorsement by the prior holder, which gives the transferee

all the transferor’s rights to enforce the instrument. Id. at 657–58 (citing UCC

§§ 3.201, .203–.205).

      UCC Chapter 9, on the other hand, governs security interests and contains a

mechanism for transferring both promissory notes and mortgages. Id. at 676, 690–

91 (referencing UCC § 9.203(g)). But UCC Chapter 9 says nothing about note

enforcement, leaving that to UCC Chapter 3. 6 Id. at 699–700. Under UCC Chapter 3,

      6
        NBT argues that the UCC “simply does not apply to interests in and liens on
real property.” But “[i]ssues relating to the transfer, ownership, and enforcement of
mortgage notes” are affected by UCC Chapter 3 when the mortgage note is a
negotiable instrument and by UCC Chapter 9 when addressing transfer of note

                                            6
an instrument is paid to the extent payment is made by or on behalf of a party obliged

to pay the instrument and to a person entitled to enforce the instrument. Tex. Bus. &

Com. Code Ann. § 3.602(a). It can also be paid to a person formerly entitled to

enforce the note, but only if at the time of the payment, the party obliged to pay has

not been adequately notified both that the note has been transferred and that payment

is to be made to the transferee. See id. § 3.602(b). A notification is “adequate” only if it

is signed by the transferor or the transferee, reasonably identifies the transferred note,

and provides an address at which future payments are to be made. Id.

       Although UCC Chapter 9’s scope does not generally apply to “the creation or

transfer of an interest in or lien on real property,” one exception to this general rule is

for “liens on real property in Sections 9.203 and 9.308.” Id. § 9.109(d)(11)(A). Section

9.203 provides that a security interest attaches to collateral when it becomes

ownership and the transferee’s right, “under certain circumstances, to record its
interest in the mortgage in the applicable real estate recording office.” Permanent
Editorial Bd. for the Unif. Commercial Code, Report of the Permanent Editorial Board for
the Uniform Commercial Code: Application of the Uniform Commercial Code to Selected Issues
Relating to Mortgage Notes 2 (2011), https://www.ali.org/media/filer_public/
1a/10/1a103e01-5bbe-4d2e-a65c-c766b7b2b054/peb_report_-_november_2011.pdf
(UCC Board). Compare Tex. Bus. & Com. Code Ann. § 9.101 cmt. 1 (stating that UCC
Chapter 9 “provides a comprehensive scheme for the regulation of security interests
in personal property and fixtures”), with id. cmt. 4.a. (stating that UCC Chapter 9 “also
addresses explicitly . . . any property (including real property) that secures a right to
payment or performance that is subject to an Article 9 security interest,” and
referencing Sections 9.203 and 9.308), and id. § 9.109(d)(11) (setting out certain
exceptions to the UCC’s general statement that Chapter 9 “does not apply to . . . the
creation or transfer of an interest in or lien on real property . . . as defined by Section
64.001, Property Code”).

                                             7
enforceable against the debtor with respect to the collateral, and that it is enforceable

against the debtor and third parties if value has been given, the debtor has rights in

the collateral or the power to transfer rights in the collateral to a secured party, and,

among other things, the debtor has authenticated a security agreement that describes

the collateral. Id. § 9.203(a), (b)(1)–(3)(A). “The attachment of a security interest in a

right to payment or performance secured by a security interest or other lien on

personal or real property is also attachment of a security interest in the security

interest, mortgage, or other lien.” Id. § 9.203(g); see id. § 9.203 cmt. 9 (“Subsection (g)

codifies the common-law rule that a transfer of an obligation secured by a security

interest or other lien on personal or real property also transfers the security interest or

lien.”); see also Conoly, 42 State Bar of Tex. Prof. Dev. Program, Advanced Real Estate

Law Course, at 26.5 (explaining that foreclosure of a collateral note under a collateral

transfer is governed by the Texas Business and Commerce Code rather than by the

Texas Property Code but also noting that when the collateral note is a note secured by

a deed-of-trust lien on real property, the underlying real property is the primary source

of security and the collateral note security “is merely a means of reaching the real

property”).

       UCC Chapter 9 defines “mortgage” as a “consensual interest in real property,

including fixtures, that secures payment or performance of an obligation,” Tex. Bus.

& Com. Code Ann. § 9.102(a)(55), and “encumbrance” as “a right, other than an

ownership interest, in real property,” including mortgages and other liens on real

                                            8
property, see id. § 9.102(a)(32). “Issues concerning mortgages under Chapter 9 arise in

the context of priority conflicts between a security interest created under

Chapter 9 and an interest in the same collateral created by a mortgage.” 2 Vernon’s

Tex. Code Forms Anno., UCC Forms § 9.102(a)(55) (4th ed. 2021).

         The following illustrates how the UCC can overlap with real-property law:

         Maker issued a mortgage note payable to the order of Payee. Payee
         borrowed money from Funder and, to secure Payee’s repayment
         obligation, Payee and Funder agreed that Funder would have a security
         interest in the note. Simultaneously with the funding of the loan, Payee
         gave possession of the note to Funder. Funder has an attached and
         enforceable security interest in the note. UCC § 9.203(b). This is the case
         even if Payee’s agreement is oral or otherwise not evidenced by an
         authenticated record. Payee is no longer a person entitled to enforce the
         note (because Payee is no longer in possession of it and it has not been
         lost, stolen, or destroyed). UCC § 3.301. Funder is a person entitled to
         enforce the note if either (i) Payee indorsed the note by blank
         indorsement or by a special indorsement identifying Funder as the
         person to whom the indorsement makes the note payable (because, in
         such cases, Funder would be the holder of the note), or (ii) the delivery
         of the note from Payee to Funder constitutes a transfer of the note
         under UCC § 3.203 (because, in such case, Funder would be a nonholder
         in possession of the note with the rights of a holder).

UCC Board, supra n.6, at 10–11 (footnote omitted).7

         With these terms and the relevant statutory scheme in mind, we turn to the

facts.

     This example does not address the interplay between state law on agency and
         7

UCC Chapter 9, the significance of which we address later.

                                             9
                                   III. Background

A. Factual History8

      Campbell’s 2011 sale to K&M Collision. On January 1, 2011, Campbell

issued a warranty deed with vendor’s lien to K&M Collision and the Admires in

exchange for a $674,644.16 promissory note “secured by a first and superior vendor’s

lien and superior title retained in this deed and by a first-lien deed of trust.” The deed

was recorded in the county real-property records on June 1, 2011. Campbell was

identified as K&M Collision’s lender in the January 1, 2011 deed of trust, which

defined “lender” as including “any mortgage servicer for Lender.” The deed of trust

was recorded in the real-property records, also on June 1, 2011. See Tex. Prop. Code

Ann. § 13.002(1).

      Pinnacle’s 2012 loan to Campbell. A little over a year later, in August 2012,

Campbell used the deed of trust and other documents to secure an unrelated

$225,000 loan from Pinnacle.9 In doing so, he executed a “Collateral Assignment of

Beneficial Interest in Deed of Trust/Mortgage and Collateral Documents.” 10 The

      8
       The documents and facts we discuss are all in the summary-judgment record.
      9
       The loan was made on behalf of Campbell himself; his trust; and his
companies Falcon 206 Exploration Sales and Leasing LLC and Campbell’s Auto
Body, Inc.
      10
        When a note’s payee seeks to use the note as collateral or to sell the note
outright, UCC Chapter 9 “governs that transaction and determines whether the
creditor or buyer has obtained a property right in the note.” UCC Board, supra n.6, at
8. The sold right to payment is designated “collateral.” Id. at 9. To create a “security

                                           10
collateral assignment referenced the K&M note and prohibited Campbell from

modifying any collateral loan—that is, the K&M note—or collateral-loan documents

without Pinnacle’s prior written consent. It also stated that Campbell, as pledgor,

      hereby collaterally assigns, transfers, conveys, sets over, and pledges to
      [Pinnacle], and grants to [Pinnacle] a security interest in, all Pledgor’s
      right, title and interest in the Collateral Loan and the Collateral Loan
      Documents. This Assignment is made pursuant to, and the assignments
      made herein are further evidenced by, a certain Collateral Assignment
      and Security Agreement (Promissory Notes and Collateral Documents)
      dated even date herewith . . . . The assignment of Pledgor’s interests to
      [Pinnacle] shall remain in full force and effect, and shall be upon all
      other persons and entities unless and until a release of this Agreement
      has been executed and filed of record by [Pinnacle].

      The assignment also said:

      For purposes of clarification, notwithstanding anything to the contrary
      contained in this Assignment or the aforementioned assignment
      described in the Collateral Documents Assignment, the assignment is
      not and shall not be construed as an absolute assignment; rather, it is
      intended to be a collateral assignment for the purpose of granting
      Lender a security interest in the Collateral Loan and the Collateral Loan
      Documents.

Compare Tex. Bus. & Com. Code Ann. § 3.302(e) (limiting recovery of holder in due

course who possesses only a security interest in a negotiable instrument), with id.

§ 9.604(a) (stating that if a security agreement covers both personal and real property,

the secured party may proceed against the personal property without prejudicing any

interest” in either the note securing an obligation or the outright sale of the note:
(1) value must be given; (2) the seller must have rights in the note or the power to
transfer rights in the note to a third party; and (3) either the seller must authenticate a
security agreement that describes the note or the secured party must take possession
of the note in accordance with the seller’s security agreement. Id.

                                            11
rights with respect to the real property, or against both personal and real property “in

accordance with the rights with respect to the real property”).

      The assignment was recorded on September 11, 2012.

      Pinnacle’s 2015 assignment to NBT; NBT’s loan to Campbell. Three

years later, Pinnacle assigned its interests to NBT as security for NBT’s unrelated

$750,000 loan to Campbell.11 The assignments were recorded on November 25, 2015.

The K&M note was additionally marked, “Pay to the order of the National Bank of

Texas in accordance with Collateral Assignment of Beneficial Interest in Deed of

Trust/Mortgage and Collateral Documents dated August 17, 2012,” and it was signed

by a Pinnacle branch president. NBT took physical possession of the promissory

note. The “Assignment and Transfer of Deed of Trust and Lien, Guaranty and

Miscellaneous Documents” stated that Pinnacle, as “Holder of the Note, Deed of

Trust and lien[,] sells, transfers, conveys and assigns the Note, Deed of Trust, lien,

Guaranties    and   all   supporting    documentation     and     the   COLLATERAL

ASSIGNMENT           OF      BENEFICIAL         INTEREST          IN    DEED        OF

TRUST/MORTGAGE AND COLLATERAL DOCUMENTS, (collectively ‘Loan

Documents’) to [NBT].”

      11
         The record does not indicate whether Pinnacle was repaid out of the NBT
loan proceeds, but Pinnacle is not a party and its interests have not been raised by the
parties.

                                          12
       Campbell also signed a “Commercial Pledge Agreement” in connection with

the NBT loan transaction in which he granted NBT a security interest in collateral to

secure his note, agreed that NBT would have the rights stated in the agreement

regarding the collateral, and identified the collateral as Campbell’s

      present and future rights, title and interest in and to the following
      described investment property, together with any and all present and
      future additions thereto, substitutions therefor, and replacements
      thereof, and further together with all income and proceeds as described
      herein: ASSIGNMENT OF NOTE RECEIVABLE DATED
      JANUARY 1, 2011 FROM K&M COLLISION . . . AND [THE
      ADMIRES] IN THE ORIGINAL AMOUNT OF $674,644.16.

      In the pledge agreement, Campbell warranted to NBT that, among other

things, he would not sell, transfer, encumber, or otherwise dispose of any of his rights

in the collateral except as provided by the agreement; that “[t]o the extent the

Collateral consists of promissory notes or other instruments, as defined by the [UCC],

the Collateral is enforceable in accordance with its terms, is genuine, and fully

complies with all applicable laws and regulations concerning form, content and

manner of preparation and execution”; and that NBT could file a UCC financing

statement or a copy of the agreement to perfect its security interest. Campbell also

agreed to immediately deliver to NBT all income and proceeds from the collateral. If

Campbell defaulted, NBT could (among other remedies) sell the collateral “at one or

more public or private sales” or “maintain a judicial suit for foreclosure and sale of”

the collateral. In addition, the agreement defined “related documents”—with which

Campbell also had to comply—to include “all promissory notes, credit agreements,

                                            13
loan agreements, . . . security agreements, mortgages, deeds of trust, security deeds,

collateral mortgages, and all other instruments, agreements and documents, whether

now or hereafter existing, executed in connection with the indebtedness.”

      K&M Collision’s 2016 sale to JS & TA Properties. Not quite another full

year passed before K&M Collision decided to sell the property to JS & TA Properties,

LLC (JS&TA), in a transaction effective June 16, 2016. Around that time, Campbell

owed NBT $667,237.37.

      Before the property’s transfer to JS&TA, Brittaney Siciliano, an officer of

Republic Title, exchanged emails with Campbell in early June about the K&M note’s

payoff amount,12 which he told her would be $600,090.61, plus $3,000.45 in interest

for that month, divided by 30 days, to amount to $100.01 per day.13 Republic Title

      12
        Under Property Code Section 12.017, a title insurance company may request a
“payoff statement” for a mortgage on nonresidential property with an original face
amount of indebtedness of less than $1.5 million. Tex. Prop. Code Ann.
§ 12.017(a)(5), (b). A “payoff statement” is a statement of the amount of “the unpaid
balance of a loan secured by a mortgage, including principal, interest, and other
charges properly assessed under the loan documentation of the mortgage; and interest
on a per diem basis for the unpaid balance.” Id. § 12.017(a)(5)(A)–(B). A person
transmitting a payoff statement is considered the “mortgage servicer”—“the last
person to whom a mortgagor has been instructed by a mortgagee to send payments
for the loan secured by a mortgage”—for the mortgage described in the payoff
statement. Id. § 12.017(a)(3); see also id. § 51.0001(3) (defining “mortgage servicer” as
“the last person to whom a mortgagor has been instructed by the current mortgagee
to send payments for the debt secured by a security instrument” and stating that a
mortgagee may be the mortgage servicer).

       Campbell had previously emailed Meagan Kendrick, Siciliano’s sister and
      13

Republic Title coworker, in response to Kendrick’s May 2016 query about payoff

                                           14
business records show that on May 25, 2016, Siciliano had asked a legal assistant to

prepare a release of lien and that an initial draft was prepared for NBT to sign as the

current owner and holder of the debt and lien securing the 2011 deed of trust that had

been assigned to it from Pinnacle. Siciliano later asked the legal assistant to revise the

release of lien to reflect release of Campbell’s—not NBT’s—interest,14 and a new

draft was created showing Campbell as the current owner and holder of the debt and

lien and omitting any information about or reference to Pinnacle and NBT. Republic

Title’s records showed that it knew of the assignments from Campbell to Pinnacle and

then to NBT, but they also showed that K&M Collision’s owners had been paying

Campbell on the note. 15 Siciliano notarized the June 16, 2016 “general warranty deed

with vendor’s lien (2nd vendor’s lien)” from K&M Collision to JS&TA, and it was

recorded several days later.

figures for the K&M Collision sale. In that email, he told her, “The payoff on 5-1-
2016 was $601,429.61” with daily interest of $97 per day.

      Siciliano’s June 16 email read, “Release should be signed by John Franklin
      14

Campbell, IV, as Trustee for the John Franklin Campbell IV Living Trust. That is
who we are paying off. Can you revise please?”
      15
         From the record, it does not appear that K&M Collision ever knew about
Campbell’s assignments. Until Republic Title sent K&M Collision the payoff
statement, Campbell had apparently been the “last person to whom [K&M Collision]
[was] instructed by [Campbell] to send payments for a debt secured by a security
instrument,” and thus Campbell had arguably been K&M Collision’s mortgage
servicer. See Tex. Prop. Code Ann. §§ 12.017(a)(3), 51.0001(3).

                                           15
      The June 17, 2016 Republic Title seller’s settlement statement shows that out

of the $740,000 sales price paid to K&M Collision, Campbell received $601,790.78 by

wire transfer. Campbell executed a “full release of lien” on December 16, 2016, that

was filed on January 10, 2017. In that release, Campbell represented that he was the

current owner and holder of the K&M note, lien, and deed of trust and that he

released and discharged “any and all other liens and security interests securing said

indebtedness” in consideration of the full and final payment of the note. 16

      Campbell’s eventual loan default; JS&TA’s 2019 sale to BEDC. In

November 2017, NBT renewed Campbell’s loan; Campbell’s associated promissory

note, now for $649,995.48, again listed as collateral the assignment of the 2011 K&M

note—the payoff of which Campbell had surreptitiously pocketed in 2016—as well as

a security agreement on his private plane. Campbell’s note to NBT went into default

by its terms at maturity in December 2018.

      Shortly afterward, and for unexplained reasons, another release of lien on the

K&M note was recorded, on January 9, 2019. Although not filed until that day, this

release was dated June 17, 2016, and signed by Campbell. In the paragraph defining

the “debt and lien” that Campbell was the “current owner and holder of” and that he

was releasing, both Pinnacle’s and NBT’s interests were referred to:

      16
        A different release, which referred to Pinnacle and NBT and which Campbell
had apparently signed on June 17, 2016, was recorded some two years later, as we
note below.

                                           16
      A few months later, JS&TA transferred the property to BEDC through a

special warranty deed that was recorded in April 2019. The business records of WFG

National Title Company, the underwriter for McKnight Title, which handled that sale,

identified not only the recorded assignments to Pinnacle and to NBT, but also both

versions of Campbell’s recorded releases.17

B. Procedural History

      NBT initially sued the City of Benbrook and Campbell (individually and in his

trustee status), seeking to judicially foreclose on the property and to recover for the

unpaid principal balance that Campbell owed on his 2017 promissory note. Campbell

filed for bankruptcy, and in its first amended petition, NBT dropped Campbell

individually but kept him in the suit in his trustee status and amended its pleading to

sue BEDC rather than the City of Benbrook. NBT later added Republic Title as a

defendant; added a request for a declaratory judgment that Campbell’s December 16,

      17
        Coincidentally, Kendrick was then working at McKnight Title.

                                          17
2016 release of lien was void; alleged that there had been a fraudulent closing by

Republic Title; and sought recovery for, among other things, tortious interference

with contract, breach of fiduciary duty, and fraud by nondisclosure as to Republic

Title.

         BEDC answered with a general denial and several affirmative defenses,

including that the deed of trust had been extinguished by payment of the underlying

obligation and that it lacked actual or constructive notice of NBT’s claims.

         BEDC’s Motion for Summary Judgment. BEDC filed a traditional

summary-judgment motion, arguing that NBT’s judicial-foreclosure claim failed as a

matter of law because the deed of trust had been automatically extinguished in

2016 when K&M Collision paid the K&M note in full. Among BEDC’s summary-

judgment evidence were the documents showing that NBT had received an

assignment of only a collateral interest in the 2011 K&M note and deed of trust,

Siciliano’s and Campbell’s June 2016 email exchange about the payoff amount to

Campbell,18 the Republic Title seller’s settlement statement reflecting “payoff loan” to

Campbell, an email receipt regarding the wire transfer of $601,790.78 to Campbell at

          Kendrick and Campbell’s May 2016 email exchange about the payoff amount
         18

to Campbell was included in NBT’s summary-judgment evidence. When both parties
move for summary judgment and the trial court grants one motion and denies the
other, the reviewing court should review both parties’ summary-judgment evidence
and determine all questions presented. Mann Frankfort Stein & Lipp Advisors, Inc. v.
Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We should then—if possible—render the
judgment that the trial court should have rendered. See Myrad Props., Inc. v. LaSalle
Bank Nat’l Ass’n, 300 S.W.3d 746, 753 (Tex. 2009); Mann Frankfort, 289 S.W.3d at 848.

                                          18
E-Trade Bank, and Campbell’s December 2016 “Full Release of Lien,” which made

no mention of Pinnacle or NBT.

      In its response to BEDC’s summary-judgment motion, NBT complained that

BEDC had not explained how Campbell had the authority to execute a release of

NBT’s lien, argued that an issue existed about whether the proper party was paid in

the 2016 sales transaction, and pointed out a disparity between the release of lien that

Campbell had signed in June 2016 (recorded in 2019) and the release he signed in

December 2016 (recorded in 2017). NBT argued that BEDC was charged with

constructive notice of NBT’s lien, that a release was required from NBT, and that

Republic Title had taken no steps to obtain a release from NBT. NBT incorporated

by reference its own summary-judgment motion, discussed below, and the evidence

attached to that motion.

      Replying to NBT’s summary-judgment response, BEDC argued that NBT’s

and Campbell’s rights to receive the payoff were exclusively governed by the terms of

the K&M note, NBT’s collateral pledge agreement with Campbell, and NBT’s

recorded assignment of Pinnacle Bank’s collateral interest, and that NBT had brought

forward no admissible evidence to support its judicial-foreclosure claim.

      NBT’s Cross-Motion for Summary Judgment. NBT filed a cross-motion

for summary judgment, arguing that it was entitled to judgment as a matter of law on

the amount of its lien against the property and to a declaration that Campbell’s

                                          19
purported December 16, 2016 release filed in January 2017 was void.19 Although

NBT’s summary-judgment evidence was voluminous, 20 we note only those items

pertinent to our disposition of this appeal on the issue of BEDC’s notice of NBT’s

interest:

• A certified copy of the 2011 K&M deed of trust.

• The August 17, 2012 “Collateral Assignment of Beneficial Interest in Deed of
  Trust/Mortgage and Collateral Documents” between Campbell and Pinnacle,
  recorded on September 11, 2012.

• The November 20, 2015 assignment of lien and 2011 K&M deed of trust from
  Pinnacle, as “Holder of Note, Deed of Trust and Lien,” to NBT, recorded on
  November 25, 2015.

• The November 20, 2015 “Assignment and Transfer of Deed of Trust and Lien,
  Guaranty and Miscellaneous Documents” from Pinnacle to NBT, referencing the
  K&M note and deed of trust and recorded on November 25, 2015.

• Campbell’s December 16, 2016 release of lien, recorded on January 10, 2017.

       NBT’s motion did not state any specific summary-judgment grounds.
       19

Although it is fundamental that a summary-judgment motion must stand or fall on the
grounds it specifically and expressly sets forth and reliance may not be placed on
summary-judgment evidence for such grounds, see McConnell v. Southside ISD,
858 S.W.2d 337, 339, 341 (Tex. 1993), BEDC did not brief this subissue on appeal.

        Among other things, NBT attached excerpts from the February 11,
       20

2020 depositions of Siciliano and Kendrick and from Campbell’s February 28,
2020 sworn statement. Because we do not reach BEDC’s complaints about Siciliano’s
and Kendrick’s depositions, see supra n.2, we mention only that both Siciliano and
Kendrick testified that they recalled nothing about the 2016 Republic Title
transaction. Likewise, because we do not reach BEDC’s objection to Campbell’s
sworn statement, we do not go into his testimony except to say that he claimed to
have relied on Republic Title to tell him what was needed for the 2016 transaction.

                                        20
• Campbell’s June 17, 2016 release of lien, recorded on January 9, 2019.21

      BEDC filed a response to NBT’s motion in which it incorporated its summary-

judgment motion by reference, as well as all admissible summary-judgment evidence

in the record. It argued that the payment to Campbell extinguished the deed-of-trust

lien, barring NBT’s judicial-foreclosure claim as a matter of law.

      In a reply brief, NBT argued that BEDC had failed to identify any evidence to

show that Campbell’s December 2016 release of lien was not void or to show that

Campbell was NBT’s agent for payoff or any other purpose. 22 NBT asserted that the

evidence showed that at the time of the 2016 payoff, it owned a deed of trust and a

vendor’s lien on the property and had physical possession of the K&M note and that

      21
        NBT also attached a title search of all grantees on the property’s current deed
run by Republic Title on May 17, 2016. Those records showed the transfer of a
warranty deed from Campbell to K&M Collision and Campbell’s Auto Body
Benbrook on June 1, 2011; the transfer of “COLL ASG/TFR” from Campbell (as
well as Falcon 206 and Campbell’s Auto Body Inc.) to Pinnacle Bank on September
11, 2012; and K&M Collision’s owners, K&M Collision, and Pinnacle Bank’s transfers
of “ASGMT LIEN” to NBT on November 25, 2015.
      22
        A trial court cannot grant summary judgment on grounds not presented in the
summary-judgment motion. See Tex. R. Civ. P. 166a(c); G & H Towing Co. v. Magee,
347 S.W.3d 293, 297 (Tex. 2011); see also State Farm Lloyds v. Page, 315 S.W.3d 525,
532 (Tex. 2010) (stating that a “[s]ummary judgment may not be affirmed on appeal
on a ground not presented to the trial court in the motion”). New grounds for
summary judgment asserted by a movant in a reply brief are not properly considered
on appeal. Atmos Energy Corp. v. Paul, 598 S.W.3d 431, 467 (Tex. App.—Fort Worth
2020, no pet.); see Yeske v. Piazza Del Arte, Inc., 513 S.W.3d 652, 677 (Tex. App.—
Houston [14th Dist.] 2016, no pet.) (stating that a summary-judgment movant may
not use its reply brief to amend its motion or to raise new and independent summary-
judgment grounds).

                                           21
the chain of title put BEDC on both constructive notice to inquire about the rights of

other parties in the property being conveyed and actual notice through McKnight

Title’s acting as WFG’s agent in the 2019 JS&TA/BEDC transaction.

      Trial Court’s Orders. The trial court denied BEDC’s motion and granted

NBT’s, stating that Campbell owed NBT $789,721.94 as of March 26, 2020; declaring

void the December 16, 2016 release of lien recorded on January 10, 2017; and

granting NBT’s request for judicial foreclosure on the property. The trial court

severed NBT’s claims against BEDC to make the summary-judgment order final and

appealable.

                                   IV. Discussion

      BEDC complains that the trial court erred by granting summary judgment for

NBT, claiming that its evidence shows that the deed of trust held by NBT was

extinguished as a matter of law. NBT disagrees, contending that the deed of trust was

not extinguished and that BEDC purchased the property with notice. We begin with

the question of notice.

A. BEDC had notice.

      Under Property Code Section 13.001, a conveyance of real property or a

mortgage or deed of trust is void as to a subsequent purchaser for valuable

consideration who lacks notice of it “unless [it] has been acknowledged, sworn to, or

proved and filed for record as required by law.” Tex. Prop. Code Ann. § 13.001;

Broadway Nat’l Bank, Tr. of Mary Frances Evers Tr. v. Yates Energy Corp., 631 S.W.3d 16,

                                          22
26 (Tex. 2021). An instrument that is properly recorded in the proper county is notice

to all persons of the instrument’s existence. Tex. Prop. Code Ann. § 13.002(1); Bank of

Am. v. Babu, 340 S.W.3d 917, 923 (Tex. App.—Dallas 2011, pet. denied) (“A party has

constructive notice of instruments properly recorded in the proper county.”);

3 Aloysius A. Leopold, Texas Practice Series: Land Titles And Title Examination § 8.3 (3d

ed. 2021) (“The primary purpose of the recording statutes, which require the

registration of deeds and other instruments affecting interests in land,[] is to give

notice of the contents[] of the recorded instruments.”).

        A bona fide purchaser is one who acquires property in good faith, for value,

and without notice—constructive or actual—of any third-party claim or interest.

Broadway Nat’l Bank, 631 S.W.3d at 26. Constructive notice may create an irrebuttable

presumption of actual notice in some circumstances, and recorded instruments in a

grantee’s chain of title generally establish an irrebuttable presumption of notice. Trinity

Fin. Servs., LLC v. Mahanay, No. 02-21-00027-CV, 2022 WL 247433, at *3–4,

*6 n.3 (Tex. App.—Fort Worth Jan. 27, 2022, no pet. h.) (mem. op.) (expressly

declining to hold that a lien’s validity factors into whether there is constructive notice

of it).23

        We recently discussed deeds of trust in Mahanay, in which a property owner
        23

took out a loan and signed a promissory note and deed of trust, which were then
assigned to other financial institutions—first to Credit Union of Texas (CUTX) and
then to Companion Property and Casualty Insurance (CPCI)—and recorded in the
county real-property records. 2022 WL 247433, at *1. When the owner sold the
property, the title commitment specifically identified that the property was

                                            23
       The party claiming bona-fide-purchaser status has the burden to prove the

defense, and it is well settled that a purchaser is bound by every recital, reference, and

reservation contained in or fairly disclosed by any instrument that forms an essential

link in the chain of title under which he claims. Id. at *3–4. Any description, recital of

fact, or reference to other documents in an instrument puts the purchaser on inquiry,

and he is bound to follow up this inquiry, step by step, from one discovery to another

and from one instrument to another, until the whole series of title deeds is exhausted

and a complete knowledge of all matters referred to and affecting the estate is

obtained. Id. at *4.

       The record reflects that BEDC had constructive—if not actual—notice of

NBT’s interest in the property, including the recording of Pinnacle’s assignment to

NBT and the two unidentical releases of lien purporting to relinquish Campbell’s

interests—with the second release recorded just four months before BEDC bought

the property and explicitly referring to both the Pinnacle and NBT assignments. See

encumbered by a lien as reflected in the county real-property records. Id. The owner
told the buyers’ title agent that the note and lien had been paid off in 2009, provided
the title agent with CUTX’s contact information, and encouraged the buyers to verify
the status of the note and lien. Id. CUTX confirmed to the buyers’ title agent that the
seller had paid the note’s full amount in 2009 and that it should have recorded a
release of lien at that time, and it filed a release of lien in July 2014. Id. When Trinity
came into possession of the note and deed of trust, it attempted to foreclose on the
property in 2019. Id. We held that whether the lien had been extinguished was
irrelevant to the buyers’ bona-fide-purchaser defense (which failed because they were
on notice due to the real property records) and that the buyers were “free to prove
th[e] vital fact [of extinguishment] regardless of the bona fide purchaser defense” on
remand. Id. at *6–7.

                                            24
Broadway Nat’l Bank, 631 S.W.3d at 26 (defining a bona fide purchaser as one who

acquired property in good faith, for value, and “without notice of any third-party claim

or interest” (emphasis added)). Accordingly, we must now consider whether a

genuine, material fact issue exists with regard to NBT’s interest that might preclude

summary judgment in its favor.

B. NBT’s lien might have been extinguished.

      Campbell issued a warranty deed with vendor’s lien to K&M Collision in

exchange for the K&M note—a note secured both by the vendor’s lien and by a deed

of trust.24 Campbell then used the K&M note and deed of trust to secure unrelated

loans, first from Pinnacle and then from NBT. NBT argues that the 2012 and

2015 assignments plainly indicate that it held the deed-of-trust lien, and we agree. But

nothing in the summary-judgment record shows that Pinnacle or NBT was ever

identified as K&M Collision’s loan servicer on the note that the deed of trust secured.

Instead, the record tangentially reflects through Republic Title emails that Campbell

had continued to collect loan payments on the K&M note from K&M Collision’s

owners.

      Payoff of the K&M note extinguished the vendor’s lien and the deed of trust.

Southland Life Ins. Co. v. Barrett, 172 S.W.2d 997, 1000 (Tex. App.—Fort Worth 1943,

       Under UCC Chapter 3, K&M Collision, the note’s maker, was obliged to pay
      24

the amount of the note to the person entitled to enforce the note and such payment
would result in a discharge of K&M Collision’s obligation on the note. See Tex. Bus.
& Com. Code Ann. §§ 3.103(b), .203, .301, .412, .602; UCC Board, supra n.6, at 4.

                                          25
writ ref’d w.o.m.); see Caress v. Lira, 330 S.W.3d 363, 366 (Tex. App.—San Antonio

2010, pet. denied) (“A lien is usually extinguished upon payment of the indebtedness

that it was created to secure.”); see also Jarvis v. K & E Re One, LLC, 390 S.W.3d 631,

642 (Tex. App.—Dallas 2012, no pet.) (“When Stewart Title forwarded the loan

payoff funds to NAC, the Jarvises’ agent with authority to accept the funds, the lien

on the property was extinguished and the [deed of trust] was discharged.”); Am. First

Nat’l Bank v. Jordan-Lewis Dev., L.P., No. 01-09-00990-CV, 2011 WL 2732779, at

*5 (Tex. App.—Houston [1st Dist.] July 14, 2011, no pet.) (mem. op.). This is because

“[a] mortgage can have no legal effect apart from [the] debt or obligation it is designed

to secure, and the mortgage thus ceases to exist on payment of the underlying debt.”

1 W. Mike Baggett and Brian Thompson Morris, Texas Practice Guide: Real Estate Litig.

§ 4:89 (2022); see 2 James N. Johnson, Texas Practice Guide: Real Trans. § 10:94 (2021)

(“The lien of a mortgage or trust deed is extinguished or discharged when satisfaction

of the note evidencing the debt secured by the mortgage occurs.”). But see Russell &

Seisfeld v. Kirkbride, 62 Tex. 455, 456–57 (1884) (noting that if a property’s seller has

transferred notes given to secure purchase money, he could not be permitted “to

destroy the security which may constitute the sole or chief value of the note or notes

transferred”); Myers v. Crenshaw, 116 S.W.2d 1125, 1129 (Tex. App.—Texarkana 1938)

(stating that purchase-money note’s assignee has no right to rescission; rather his sole

right is to have the land sold and proceeds applied to satisfy his purchase-money

note), aff’d, 137 S.W.2d 7 (Tex. [Comm’n App.] 1940).

                                           26
       Further, unless otherwise displaced by UCC provisions, agency law

supplements the UCC. Aquaduct, L.L.C. v. McElhenie, 116 S.W.3d 438, 443 (Tex.

App.—Houston [14th Dist.] 2003, no pet.). And under the UCC, a final payment to

an authorized agent is deemed payment to the principal. Id.; see Metro. Ins. & Annuity

Co. v. Peachtree Settlement Funding, LLC, 500 S.W.3d 5, 17 (Tex. App.—Houston [1st

Dist.] 2016, no pet.) (citing Jarvis, 390 S.W.3d at 640). This is true even if the agent

misappropriates the money. Jarvis, 390 S.W.3d at 640. Under such circumstances, the

principal bears the loss because, as the party who trusted the wrongdoer, the principal

was in the best position to avoid the loss. Gusma Props., L.P. v. Travelers Lloyds Ins. Co.,

514 S.W.3d 319, 323 (Tex. App.—Houston [14th Dist.] 2016, no pet.). Circumstantial

evidence can establish an agency relationship and determine the scope of the agent’s

authority, but the question of agency is usually one of fact. Jarvis, 390 S.W.3d at 639,

641; Aquaduct, L.L.C., 116 S.W.3d at 442. An agent cannot create the authority to bind

the principal; actual or apparent authority is created only by the principal’s words or

conduct. Coleman v. Otese Ltd., No. 02-19-00015-CV, 2020 WL 370577, at *6 (Tex.

App.—Fort Worth Jan. 23, 2020, no pet.) (mem. op.).

       We have found two cases involving unfaithful loan servicers who

misappropriated payoff funds. See Jarvis, 390 S.W.3d at 640; Aquaduct, L.L.C.,

116 S.W.3d at 443. In Jarvis, the debtor signed a note and deed of trust naming her

lenders as beneficiaries “c/o” the loan servicer at whose office she made monthly

payments. 390 S.W.3d at 635. When the debtor decided to sell the property, the loan

                                            27
servicer provided the payoff amount and wiring instructions to its account to the

buyer’s title company. Id. at 635–36. The loan servicer received the loan payoff funds

but did not disburse them to the lenders; instead, it sent the lenders monthly checks

purporting to be note payments and then stopped making those payments. Id. When

the lenders learned a year later that the property had been sold, they informed the

loan servicer that it was “no longer authorized to act as a servicing agent on [their]

behalf.” Id.

       At trial, the lenders denied that they had given the loan servicer the authority to

accept loan payoffs on their behalf. Id. at 640. Other evidence, however, showed that

of the lenders’ ten loans with this particular loan servicer, three—including the one at

issue—had been paid off, and in the first two, the loan servicer had received the

payoff funds and then disbursed the funds to the lenders, who did not assert either

time that the loan servicer had lacked authority to receive the funds on their behalf. Id.

at 637, 641. The trial court found—and the appellate court agreed that more than a

scintilla of evidence supported—that through the lenders’ and loan servicer’s course

of conduct, they had established a usual, customary, and authorized procedure by

which the loan servicer directly received payoff funds and then disbursed them to the

lenders and that the loan servicer had the implied actual authority to accept and

receive the loan payoff on the note at issue on the lenders’ behalf. Id. at 637, 640–41.

When the title company forwarded the loan-payoff funds to the loan servicer, the

                                           28
lenders’ agent with authority to accept the funds, “the lien on the property was

extinguished and the [deed of trust] was discharged.” Id. at 642.

       Likewise, in Aquaduct, when a loan servicer converted a note’s payoff amount

during a loan refinance, the trial court found—and the appellate court agreed—that

the evidence sufficed to show that the loan servicer had implied actual authority to

accept full payment of the note on the lienholder’s behalf. 116 S.W.3d at 442–43.

When the lienholder had acquired the note and deed of trust, it failed to make a

written agreement defining the scope of the loan servicer’s authority, and the

lienholder’s president testified that the loan servicer had had the authority, among

other things, to conduct the day-to-day business of handling the notes and to issue

payoff statements. Id. at 442. The loan servicer’s letter to the lienholder’s newly

acquired debtors merely informed them that servicing of the note had been

transferred to it and directed them to send their payments to it; the letter did not

mention the new lienholder’s name, and the new lienholder never had any

communication with its debtors. Id. The lienholder did not tell its loan servicer that it

could not accept full payments of notes until two years after the loan servicer had

accepted the full payoff at issue in the case. Id. at 442–43.

       Here, although NBT argues that BEDC provided no evidence to show that

Campbell had a right to enforce the K&M note even before he assigned the note and

liens to Pinnacle, the K&M note’s terms require payment to “Lender,” who was

identified in the note as Campbell, at his address “or any other place that Lender may

                                            29
designate in writing,” and the deed of trust defined “Lender” to include “any

mortgage servicer for Lender.” There is no evidence that Pinnacle, or NBT upon its

acquiring the note and deed of trust, instructed K&M Collision to stop making note

payments to Campbell and instead to make payments to Pinnacle and, later, to NBT.

      To the contrary, the summary-judgment evidence tends to show that K&M

Collision’s owners were still making payments to Campbell in May and June 2016,

when Campbell gave Republic Title payoff information for the K&M note, and no

record evidence shows that K&M Collision’s owners were ever notified to pay anyone

else. See Tex. Prop. Code Ann. § 12.017(a)(3) (defining “mortgage servicer” as the last

person to whom a mortgagor has been instructed by a mortgagee to send payments

for a loan secured by a mortgage), § 51.0001(3) (same). Accordingly, a genuine issue

of material fact remains concerning Campbell’s status as NBT’s loan servicer and

payoff agent. If, as this record implies and as viewed in the light most favorable to

BEDC as the nonmovant, Campbell had authority to accept the payoff—as he had

been accepting K&M Collision’s monthly payments—then Republic Title’s payment

discharged NBT’s lien and BEDC took the property free of NBT’s interest, even

though Campbell continued to use the no-longer-valid liens to secure a loan extension

from NBT. See Tex. Bus. & Com. Code Ann. § 3.602 (explaining that an instrument is

considered paid to the extent payment is made by or on behalf of the party obliged to

pay it and to a person entitled to enforce it or to a person formerly entitled to enforce

it if, at the time of payment, the obligor has not received adequate notification that the

                                           30
note has been transferred and that payment is to be made to the transferee); see also id.

§ 9.308 cmt. 6 (explaining that attachment and perfection of a security interest in a

secured right to payment do not of themselves affect the obligation to pay and that

UCC Chapter 9 does not determine who has the power to release a mortgage of

record, which is determined by real-property law).

      Because there remains a genuine issue of material fact regarding the status of

the lien, the trial court erred by granting a summary judgment of judicial foreclosure

in NBT’s favor. See De La Garza, 2018 WL 5725250, at *7. We sustain this portion of

BEDC’s sole issue.

                                    V. Conclusion

      Having sustained the dispositive portion of BEDC’s sole issue, we reverse the

trial court’s judgment and remand the case for further proceedings.

                                                      /s/ Elizabeth Kerr
                                                      Elizabeth Kerr
                                                      Justice

Delivered: April 7, 2022

                                           31