Gramercy Ins. v Arcadia Financial

• Citation: 32 S.W.3d 402
• Parties: <!--32 S.W.3d 402 (Tex.App.-Houston 2000) GRAMERCY INSURANCE CO., Appellant v. ARCADIA FINANCIAL LTD., Appellee NO. 14-99-00373-CV In The Fourteenth Court of Appeals
• Decision Date: 26 October 2000
• Court: Texas Court of Appeals

Page 402

32 S.W.3d 402 (Tex.App.-Houston [14th Dist.] 2000)

GRAMERCY INSURANCE CO., Appellant v ARCADIA FINANCIAL LTD., Appellee

NO. 14-99-00373-CV

In The Fourteenth Court of Appeals

October 26, 2000.

Rehearing Overruled December 7, 2000.

On Appeal from the County Civil Court at Law No. 4 Harris County, Texas Trial Court Cause No. 685,709

[Copyrighted Material Omitted] Panel consists of Chief Justice Murphy and Justices Hudson and Wittig.

OPINION

Hudson, Justice.

Gramercy Insurance Co. appeals from a judgment granted in favor of Arcadia Financial Ltd. in Arcadia's suit seeking recovery under a statutory motor-vehicle dealer bond. Arcadia also appeals from the trial court's failure to grant its request for attorney fees. We have determined that a portion of Arcadia's claim was based on the failure to deliver good title, that a portion was not based on such a failure, and that Arcadia's complaint about attorney's fees is moot. We, therefore, reverse and render in part and reverse and remand in part for further proceedings in accordance with this opinion.

Background

The relevant facts are not disputed. Arcadia was a financing company that helped finance car purchases for customers of First Financial-Fleet Lease Corp., a used-car dealer. Customers would enter into retail installment contracts with First Financial, called customer obligations. First Financial, in turn, would assign the contracts to Arcadia. In exchange for the assignment, Arcadia would compensate First Financial according to the terms of a Master Dealer Agreement between the First Financial and Arcadia.

Pursuant to the Master Dealer Agreement, however, under certain circumstances, Arcadia could require First Financial to repurchase installment contracts. Arcadia could require First Financial to repurchase a contract (1) where the car buyer defaulted; (2) where the car buyer could assert a valid claim or defense against Arcadia that the buyer could also assert against First Financial; (3) where First Financial did anything to affect the enforceability of the contract; or (4) where any warranty made by First Financial proved to be untrue. Among First Financial's warranties was a warranty that the contract evidenced a valid first lien or security interest on the car and that the lien or interest had been perfected in Arcadia's name.

At issue are two contracts First Financial assigned to Arcadia the Dovai/Washington contract and the Bratton contract. As for the Dovai contract, First Financial sold a car to Odell Dovai, also known as Odell Washington, and then assigned the contract to Arcadia. Subsequently, Dovai sued First Financial for fraud and violations of the Deceptive Trade Practices Act, alleging that First Financial had sold the car with an altered odometer. Dovai was successful in his suit against First Financial and subsequently refused to make payments on the contract held by Arcadia. When Arcadia asked First Financial to repurchase the contract, it refused.

As to the Bratton contract, the Brattons purchased a car from First Financial for approximately $19,300, using a combination of cash, trade-in, and an installment contract. Although First Financial assigned the contract to Arcadia, it failed to deliver the certificate of title to the Brattons. After the Brattons complained to Arcadia of this failure, Arcadia received a letter from BMW Preventive Maintenance demanding payment of $16,147 owed to BMW by First Financial for its acquisition of the Bratton vehicle. Arcadia paid BMW $16,000, obtained clear title, and registered the title in the Brattons' name. The Brattons ultimately paid off the contract held by Arcadia. Arcadia nevertheless asked First Financial to repurchase the Bratton contract. First Financial refused.

After First Financial refused to repurchase either the Dovai or the Bratton contracts, Arcadia sued First Financial for its failure to repurchase the contracts and received a default judgment in the amount of $27,076.46 in principal, together with $1,250 in attorney fees and post-judgment interest at the rate of 10% from the date of the signing of the judgment until paid.

As a motor vehicle dealer, First Financial was required by statute to obtain a $25,000 surety bond from an approved surety to guarantee (1) its payment of all valid bank drafts drawn by it to buy motor vehicles and (2) the delivery of good title for all motor vehicles sold by it. See Tex. Trans. Code Ann. § 503.033 (Vernon 1999). Thus, once it had obtained its default judgment, Arcadia advised First Financial's surety, Gramercy Insurance Co., of the judgment and demanded payment under the provisions of section 503.033 of the Transportation Code. When Gramercy refused, Arcadia filed suit against Gramercy, relying on the default judgment Arcadia had received against First Financial in connection with the Dovai and Bratton contracts. After a bench trial, the court entered judgment in favor of Arcadia, awarding to it $33,236.37, as well as, post-judgment interest. The court denied Arcadia's request for attorney fees.

Bond

In its first issue, Gramercy questions whether it is liable to Arcadia pursuant to section 503.033 of the Transportation Code. Under this provision of the code, recovery may be made against the surety for the amount (1) of the bank draft drawn by the dealer to purchase the vehicle or (2) paid to the dealer for a vehicle which the dealer was unable to deliver good title. See id. Here, Gramercy contends Arcadia's judgment does not arise pursuant to the statute, but from a violation of the Master Dealer Agreement, namely, First Financial's failure to repurchase the installment contracts.

In a related issue, Gramercy claims the judgment should be reversed because its liability was not based on a statutory condition, but rather upon (1) damages resulting from First Financial's failure to transfer good title to two motor vehicles in which Arcadia had only a security interest; (2) implied terms or conditions of the Master Dealer Agreement to require the dealer to transfer title to the motor vehicles to Arcadia; (3) a breach of the Master Dealer Agreement, namely, the failure to record a lien; and (4) damages relating to an act not specified or covered by the statute or the bond.

Statutory construction is a question of law which we review de novo. See Johnson v. City of Fort Worth, 774 S.W.2d 653, 656 (Tex. 1989). When interpreting a statute, we try to give effect to legislative intent. See Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865 (Tex. 1999). We look first to the plain and common meanings of the statute's words. See id. If the meaning of the statutory language is unambiguous, we adopt, with few exceptions, the interpretation supported by the plain meaning of the provision's words and terms. See id.

A licensed car dealer must have a $25,000 security bond conditioned on the payment by the dealer of all valid bank drafts, including checks, drawn by the dealer to buy motor vehicles and the transfer by the dealer of good title to each motor vehicle the dealer offers for sale. See Tex. Transp. Code Ann. § 503.033(a), (b)(2) (Vernon 1999). A "person" may recover against a surety bond if the person obtains against a dealer a "judgment assessing damages and reasonable attorney fees based on an act or omission on which the bond is conditioned." See Tex. Trans. Code Ann. § 503.033(d) (Vernon 1999) (emphasis added). When a bond is statutorily mandated, the statute is necessarily part of the bond and, thus, controlling. See Geters v. Eagle Ins. Co., 834 S.W.2d 49, 50 (Tex. 1992). The liability imposed on a surety is limited to the amount of the valid bank drafts, including checks, drawn by the dealer to buy motor vehicles or paid to the dealer for a motor vehicle for which the dealer did not deliver good title and attorney fees that are incurred in the recovery of the judgment and that are reasonable in relation to the work performed. See Tex. Trans. Code Ann. § 503.033(e) (Vernon 1999). The $25,000 bond issued by Gramercy tracked the statutory language.¹

Bratton Contract

Gramercy contends it is not liable on the "Bratton contract" because the statute was intended to protect only consumers. Thus, only a consumer, or individual to whom good title was to be delivered, has standing to bring a claim under the statute. In a related argument, Gramercy claims its liability is limited by statute to the amount paid to the dealer for a motor vehicle for which the dealer failed to deliver good title. Gramercy asserts there is no evidence Arcadia paid anything to First Financial for the motor vehicle in question; rather, Arcadia purchased an installment contract, not a motor vehicle. Thus, Gramery argues that Arcadia is, at most, a lien-holder and cannot recover under the statute.

The statute provides that any "person" may recover against a surety bond if that person obtains a judgment against a dealer assessing damages and reasonable attorney fees "based on an act or omission on which the bond is conditioned." See id.² Whether such persons must also have directly purchased vehicles from dealers appears to be a question of first impression.

The Utah Supreme Court, however, has construed a similar auto-dealer bonding statute. See Lawrence v. Ward, 300 P.2d 619, 621 (Utah 1956). The Utah statute gave a right of action against a motor-vehicle dealer and its surety to "any person" who suffered "any loss or damage by reason of fraud, fraudulent representation or violation of any of the provisions" of the bonding act. Id. The bonding company argued, as Gramercy does here, that the act protected only consumers, not financing companies doing business with the dealer. The bonding company reasoned that consumers, who are arguably less sophisticated than a dealer in vehicle-related matters, might need greater protection. An experienced financing company, however, would need no such protection. See id. The court rejected the...