Howze v. Surety Corp. of America

• Decision Date: 25 April 1979
• Docket Number: No. B-7641,B-7641
• Citation: 584 S.W.2d 263
• Parties: Allen R. HOWZE et ux., Petitioners, v. SURETY CORPORATION OF AMERICA, Respondent.
• Court: Texas Supreme Court

Page 263

584 S.W.2d 263

Allen R. HOWZE et ux., Petitioners, v. SURETY CORPORATION OF AMERICA, Respondent.

No. B-7641.

Supreme Court of Texas.

April 25, 1979.

Rehearing Denied July 3, 1979

Howard & McDowell, Thomas D. McDowell, Corpus Christi, for petitioners.

Richard Cross, Houston, William L. Ehrle, Austin, for respondent.

GREENHILL, Chief Justice.

Surety Corporation of America ("Surety") originated this suit in Travis County seeking a declaratory judgment that it was not liable to Allen R. Howze and his wife ("Howze") on a bond it had covering a mobile home dealer with which Howze had dealt. Howze counter-claimed for the face amount of the bond. The trial court entered a take-nothing judgment against Howze. The Court of Civil Appeals affirmed the trial court's judgment holding: 1) that proper notice was not given to Surety; and 2) that Surety was only liable on its bond for violations of the Texas Mobile Homes Standards Act ("Act"). ¹ 564 S.W.2d 834 (1978). We reverse. Our holding is based upon the particular wording of the statute in question and its legislative history. As we interpret it, the statutory bond in question was intended to cover deceptive trade practices of mobile home dealers; and the bond was intended by the Legislature to cover particular judgments against such dealers rather than being a "general undertaking" bond. That being so, the surety was not entitled to notice of the suit against a mobile home dealer; and the surety was bound by the judgment against the dealer for its deceptive trade practices.

Howze purchased a mobile home from R. L. Greer who was doing business as Mobile Market Homes. As part of the down payment, Howze traded in an old mobile home. Greer agreed to assume all of Howze's indebtedness on the traded-in mobile home.

Although Greer took possession of Howze's mobile home, he did not assume his indebtedness as promised; and the lien holder made demands upon Howze to pay. Greer, in the meantime, sold the mobile home traded in by Howze. Howze then filed suit against Greer in Nueces County alleging a deceptive trade practice in that he falsely represented that he would assume the indebtedness of Howze. ² Furthermore, Greer failed to deliver, as he had promised to do, the title on the new mobile home which Howze had just purchased. No violation of the Texas Mobile Homes Standards Act was alleged.

The trial court found that Mr. and Mrs. Howze were consumers as defined under the Deceptive Trade Practices Act ³ and that they were entitled, under the Deceptive Trade Practices Act, to three times their actual damages of $13,542.13, plus attorney's fees. The District Court of Nueces County entered a default judgment against Greer in the amount of $42,126.00. No appeal was taken from that judgment, and that judgment is final.

At the time of Greer's misrepresentation, he was bonded pursuant to the requirements of Article 5221f, the Texas Mobile Homes Standards Act. Greer was the principal on the bond, and Surety Corporation of America was the surety. Surety was not made a party to the lawsuit against Greer, and no notice was given to Surety prior to the rendering of the default judgment against Greer.

Five days after the default judgment, Howze obtained a writ of execution. It was returned unsatisfied. Howze then made a demand on Surety for the face amount of the Bond, $25,000.00. Surety refused to pay and filed this declaratory judgment suit in Travis County. The basic questions which this Court must answer are: 1) was Surety entitled to notice of the proceeding against Greer; 2) what effect did the default judgment against Greer have upon Howze's counterclaim against Surety; and 3) was Greer's misrepresentation within the scope of the bond's coverage.

A. Was Notice to Surety Required?

The Court of Civil Appeals held that the default judgment obtained by Howze against Greer was not binding upon Surety because it had no notice of the suit. Its opinion is based upon the distinction between "particular judgment bonds" and "general undertaking bonds" as delineated in United States Fidelity & Guaranty Co. v. Paulk, 15 S.W.2d 100 (Tex.Civ.App. Texarkana 1929, no writ) and Browne v. French, 22 S.W. 581 (Tex.Civ.App.1893, no writ).

Both cases set out the general rule in Texas that when a surety agrees to be liable for a particular judgment, then no notice need be given. However, when a surety contracts to be generally liable for all the undertakings of the principal, the surety must be given notice and an opportunity to defend the case before it is bound by the judgment. The Court of Civil Appeals found that this was a general undertaking bond. We disagree.

The bond in the present case was not a general undertaking bond. It was an agreement defined by the Texas Mobile Homes Standards Act to be liable for a judgment against the principal. The Act, and even the bond itself, states:

(the principal and surety are) firmly bound unto THE STATE OF TEXAS in the sum of $25,000.00 dollars payable at Austin, Travis County, Texas for the use by a consumer, the State, or any political subdivision thereof Who establishes liability against a dealer for damages, penalties, or expenses . . . .

The Act and bond both state specifically that the surety is not liable until the State, political subdivision or consumer Establishes liability. ⁴ It is implicit that one establishes liability by obtaining a judgment in a court of competent jurisdiction. A consumer can only make a claim upon the surety when he has obtained a judgment against the principal, or when he sues them together in the same suit. These bonds are, therefore, Judgment bonds; and the surety is bound despite the fact that it was neither notified nor joined as a party.

It is interesting that soon after this suit had arisen, the Legislature amended the Act to provide for notice to be given by the Texas Department of Labor and Standards to the surety of any claim against the bond. ⁵ It is obvious that the Legislature, having created by statute a particular judgment bond which generally requires no notice, wished to provide for notice to the sureties and did so by amendment. Cases arising in the future will no doubt be governed by this statutory provision.

B. The Evidentiary Value of the Judgment

Intermingled with the problem of the required notice is the question of what effect the default judgment against Greer has upon Howze's counterclaim against Surety. Surety claims that at best the default judgment is prima facie proof only of its own rendition. See, e. g., RESTATEMENT OF SECURITY § 139(3) (1941) ⁶ and Monmouth Lumber Co. v. Indemnity Ins. Co., 21 N.J. 439, 122 A.2d 604 (1956). Howze claims that the default judgment should be conclusive proof or at least create a rebuttable presumption of Surety's liability. See, e. g., Sauer v. Detroit Fidelity and Surety Co., 237 Mich. 697, 213 N.W. 98, 51 A.L.R. 1485 (1927); 72 C.J.S. Principal and Surety § 261 at 706; and First Mobile Home Corp. v. Little, 298 So.2d 676 (Miss.1974). There are other positions not necessary to list here. See Annotation, 59 A.L.R.2d 752.

Since this bond is a statutory bond, this Court does not need to announce a general rule applicable to all cases where a creditor obtains a default judgment against the principal and attempts to introduce the judgment against the surety. The terms of this Act (and subsequently of the bond) condition the liability of a mobile home surety upon the Establishment of liability against the principal; i. e., upon a judgment. Therefore, under the provisions of this Act, a judgment which establishes liability against the principal resulting from a cause of action Connected with the sale or lease of a mobile home is binding upon the surety, absent proof of fraud or collusion. There was none here.

C. The Extent of the Bond Coverage

Surety claims that it is only liable on its bond for violation of the Texas Mobile Homes Standards Act, and cannot be held liable for a violation by its principal of only the Deceptive Trade Practices Act. The liability of a surety on its bond is normally determined by the language of the bond itself. Harrison v. Barngrover, 118 S.W.2d 415 (Tex.Civ.App. Beaumont 1938, writ ref'd). In the present case the bond in pertinent part states:

The first paragraph of the bond is taken from the Act itself. The second paragraph was recommended by the Texas Department of Labor and Standards.

We construe the bond as a whole and the intent of the Legislature in requiring it. It is a statutory bond; and as such, the Texas Mobile Homes Standards Act is made part of the bond and is controlling regardless of the bond's language. Globe Indemnity Co. v. Barnes, 288 S.W. 121 (Tex.Com.App. 1926, judgmt adopted).

The Texas Mobile Homes Standards Act was first enacted in 1969. It was entitled: Uniform Standards Code for Mobile Homes. It was a limited act, passed to protect the consumer public by providing minimum standards for the manufacture and sale of mobile homes. It was amended in 1971 and in 1973. The 1971 amendments created the Performance Certification Board and dealt primarily with the inspection of mobile homes; they also changed the Act's name to the Mobile Homes Standards Act. Acts 1971, 62nd Legislature, ch. 896, p. 2765. The 1973 amendment added the sections dealing with "tie-down" standards and provisions for inspections, fees, and penalties. Acts 1973, 63rd Legislature, ch. 606, p. 1673.

The bonding provisions which are pertinent to this case were added in 1975. Acts 1975, 64th Legislature, ch. 674, p. 2036. In general the provisions require that each manufacturer, dealer and salesperson be bonded so as to insure compliance with the Intent of the Act. ⁷ The bonding provisions were added as part of Senate Bill 397 which was authored by Senator Doggett and sponsored in the House by Representative Uher. ⁸ This bill added for the first time a declaration of purpose to the Act which states:

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