Can warranty deeds with after-acquired property clauses function as security interests? Tanner v. Carter Explained

In Tanner v. Carter, the Utah Supreme Court addressed the complex interplay between divorce settlements, water rights, and corporate dissolution in a case involving disputed ownership of valuable water rights originally tied to a large ranch development.

Background and Facts

Mary Tanner’s divorce decree awarded her half of all water rights her ex-husband Lloyd Carter owned at the time of their 1989 divorce. The water rights originated from a 1980 transaction where Lloyd’s brother Steve purchased Grassy Meadows Ranch through Kristy Enterprises, a corporation that later suffered financial difficulties and was dissolved in 1987. In 1984, Kristy Enterprises had executed a warranty deed to Lloyd containing an after-acquired property clause for future water rights. When Graff later handed Steve the master deed to water right 81-1475 in 1989, Tanner claimed Lloyd acquired title through this after-acquired property clause, entitling her to half under the divorce settlement.

Key Legal Issues

The central question was whether the 1984 warranty deed with its after-acquired property clause actually conveyed present or future water rights to Lloyd, or whether it functioned merely as a security instrument. Secondary issues included whether alleged conspiracies by the Carter family deprived Tanner of water rights and the validity of various altered deeds.

Court’s Analysis and Holding

The Supreme Court affirmed the trial court’s finding that the 1984 warranty deed functioned as a security interest rather than a conveyance. The Court noted that clear and convincing evidence must establish that a deed was intended as a security instrument. Here, both Steve and Lloyd testified that the deed was never intended to transfer water rights, and Kristy Enterprises’ business focused on dispensing rather than retaining water rights for third-party purchasers. The deed specifically disclaimed present ownership and merely expressed an obligation to transfer future rights, supporting the security interest interpretation.

Practice Implications

This decision demonstrates that warranty deeds with after-acquired property clauses are not automatically conveyances—courts will examine the parties’ actual intent and surrounding circumstances. The Court also emphasized the critical importance of marshaling evidence on appeal, declining to consider Tanner’s conspiracy claims because she failed to present evidence supporting the trial court’s findings before challenging them. Practitioners should ensure that deed language clearly reflects the parties’ intent, particularly in complex transactions involving dissolved corporations and third-party obligations.