Stewart Title Guar. Co. v. Aiello

• Decision Date: 18 April 1997
• Docket Number: No. 96-0092,96-0092
• Citation: 941 S.W.2d 68
• Parties: 40 Tex. Sup. Ct. J. 290 STEWART TITLE GUARANTY COMPANY, Petitioner, v. Roger N. AIELLO and Evelyn S. Aiello, Respondents.
• Court: Texas Supreme Court

Page 68

941 S.W.2d 68

40 Tex. Sup. Ct. J. 290

STEWART TITLE GUARANTY COMPANY, Petitioner, v. Roger N. AIELLO and Evelyn S. Aiello, Respondents.

No. 96-0092.

Supreme Court of Texas.

Argued Oct. 1, 1996.

Decided Jan. 31, 1997.

Rehearing Overruled April 18, 1997.

Charles E. Fitch, Ben A. Baring, Houston, John S. Birkelbach, El Paso, for petitioner.

Leslie Warner de Soliz, Victoria, I. Nelson Heggen, Houston, for respondents.

CORNYN, Justice, delivered the opinion of the Court.

In this appeal we consider whether Stewart Title Company's duty of good faith and fair dealing survived the entry of an agreed judgment with its insureds, Roger and Evelyn Aiello. The court of appeals held that it did. 911 S.W.2d 463, 471. Because the agreed judgment did not obligate Stewart Title to determine and pay future claims of the Aiellos in its capacity as an insurer, we hold that the only legal relationship between the parties following entry of judgment was that of judgment creditor and judgment debtor. We therefore reverse the court of appeals's judgment on this issue. Accordingly, we vacate the Aiellos' award of actual tort damages and exemplary damages. We further hold that the court of appeals erroneously reduced the Aiellos' award of attorney's fees. Finally, we affirm the court of appeals's judgment on Stewart Title's breach of contract counterclaim and Stewart Title's claim for attorney's fees.

I. Facts

When Roger and Evelyn Aiello discovered a five-foot utility easement on their property, they determined that it was not mentioned in their title insurance policy issued by Stewart Title. Stewart Title refused to honor their claim under the policy, and the Aiellos sued. Eventually, the parties settled.

By the terms of the settlement, Stewart Title agreed to pay the Aiellos a total of $319,000.00. Stewart Title further agreed to pay all court costs and $100.00 per day until all papers were signed and all funds paid. The trial court signed an agreed judgment on April 11, 1988, which read:

[I]t is, therefore, ORDERED, ADJUDGED and DECREED by the Court that Plaintiffs, ROGER N. and EVELYN S. AIELLO, recover from Defendant STEWART TITLE GUARANTY COMPANY $319,000.00. Upon payment of such sum by cashier's check, Plaintiffs will deed over to the nominee of Stewart Title Guaranty Company's choice [the property]. All costs of Court expended or incurred in this cause are hereby adjudged against Defendant STEWART TITLE GUARANTY COMPANY.... Such cost to include costs of $100.00 per day from March 20, 1988 until closing papers are signed and funds received by plaintiffs.

The Aiellos made repeated attempts to contact Stewart Title and complete the settlement, but Stewart Title's attorney and officers never responded. Only after the Aiellos obtained a writ of execution and a constable arrived at Stewart Title's offices to execute the writ on June 3, 1988, did Stewart Title's attorney deliver a proposed deed to the Aiellos in accordance with the agreed judgment. Finally, on June 30, 1988, more than two months after the agreed judgment was rendered, Stewart Title paid the Aiellos $319,000.00 and requested the deed. The Aiellos, however, refused to deliver the deed because Stewart Title had neither arranged a formal closing to transfer the property nor paid any of the delay damages as required by the judgment. The Aiellos eventually delivered the deed on September 11, 1988, despite the fact that Stewart Title never held a closing or paid delay damages and postjudgment interest.

The Aiellos sued Stewart Title and others, claiming breach of the duty of good faith and fair dealing, violations of the Texas Deceptive Trade Practices Act (DTPA) and Article 21.21 of the Insurance Code, breach of contract, negligence, and gross negligence. Stewart Title counterclaimed for breach of contract and attorney's fees, alleging that the Aiellos breached the agreed judgment when they refused to promptly deliver the deed after Stewart Title paid the principal amount of the agreed judgment. The trial court granted summary judgment on all claims for all defendants but Stewart Title. As to Stewart Title, the trial court granted partial summary judgment on all of the Aiellos' claims except breach of the duty of good faith and fair dealing and breach of contract for acts occurring after signing of the agreed judgment.

At trial, the Aiellos prevailed on their breach of contract claim and their claim that Stewart Title breached the duty of good faith and fair dealing after the entry of the agreed judgment. Stewart Title prevailed on its counterclaim for breach of contract. Based on the jury's findings, the trial court rendered judgment for the Aiellos in the amount of $324,081.60, including: $100.00 a day from April 11, 1988 to June 30, 1988, totaling $10,200.00; pre- and post-judgment interest totaling $16,758.00; $7,234.60 stipulated contract damages; $16,500.00 for the mental anguish of both Aiellos; $200,000.00 for exemplary damages; and $80,000.00 in attorney's fees through trial. The trial court awarded Stewart Title $10,000.00 for its breach of contract claim, but declined to award Stewart Title any attorney's fees for trial despite the jury's finding that it was entitled to $87,500.00. Appellate fees were awarded on a conditional basis, with the amount to be awarded reduced with each further appeal by Stewart Title.

The court of appeals affirmed the Aiellos' judgment, except that it reduced their attorney's fee award to $65,823.25. The court of appeals affirmed the judgment for Stewart Title on its counterclaim, and reversed the trial court's denial of Stewart Title's attorney's fees. 911 S.W.2d at 479.

Before this Court, Stewart Title challenges the propriety of imposing a duty of good faith and fair dealing under these circumstances and the award of exemplary damages predicated on breach of such a duty. It further challenges the award of treble damages under the DTPA and Article 21.21 of the Insurance Code. Finally, Stewart Title asserts that the court of appeals erred in its calculation of postjudgment interest. Stewart Title has not challenged the trial court's award of contract damages to the Aiellos. The Aiellos challenge the court of appeals's judgment upholding Stewart Title's breach of contract claim, its reduction of their attorney's fee award, and its award of attorney's fees to Stewart Title.

The parties' dispute boils down to when the Aiellos were required to transfer title to Stewart Title under the terms of the agreed judgment. Stewart Title argues that the Aiellos were required to surrender title to the home upon payment of the $319,000.00, and that the discussion of costs and closing at the end of the judgment was independent of the Aiellos' duty to convey title. The Aiellos, on the other hand, argue that they were required to convey title only after Stewart Title held a closing and paid for the house, closing costs, and postjudgment interest.

II. Good Faith and Fair Dealing

A duty of good faith and fair dealing arises from a "special" relationship between parties. See, e.g., Crim Truck & Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 594 (Tex.1992); Aranda v. Insurance Co. of N.A., 748 S.W.2d 210, 212 (Tex.1988); Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex.1987). We have specifically imposed a duty of good faith and fair dealing on an insurer to investigate claims and make timely payment on covered losses. Arnold, 725 S.W.2d at 167.

In the insurance context a special relationship arises out of the parties' unequal bargaining power and the nature of insurance contracts which would allow unscrupulous insurers to take advantage of their insureds' misfortunes in bargaining for settlement or resolution of claims. In addition, without such a cause of action insurers can arbitrarily deny coverage and delay payment of a claim with no more penalty than interest on the amount owed. An insurance company has exclusive control over the evaluation, processing and denial of claims. For these reasons, a duty [of good faith and fair dealing] is imposed....

Id. (emphasis added). The Aiellos contend that Stewart Title's duty of good faith and fair dealing continued even after the agreed judgment was entered.

Ordinarily, a suit on an agreed judgment sounds in contract, not tort. Wagner v. Warnasch, 156 Tex. 334, 295 S.W.2d 890, 893 (1956). A party to a contract is free to pursue its own interests, even if it results in a breach of that contract, without incurring tort liability. Crim, 823 S.W.2d at 594. Therefore, unless an independent tort, such as fraud, can be proved, the judgment creditor must rely on a breach of contract action. See id. at 597.

While Aranda states that it is well settled that a duty to perform a contract with "care, skill, reasonable expedience and faithfulness" accompanies every contract, Aranda, 748 S.W.2d at 212, it is not true that every contract carries with it a duty of good faith and fair dealing. See English v. Fischer, 660 S.W.2d 521, 522 (Tex.1983). The nature of the relationship between the parties, not merely the existence of the contract alone, is the essential factor in determining whether such a duty exists. Aranda, 748 S.W.2d at 212; see also Natividad v. Alexsis, Inc., 875 S.W.2d 695, 698 (Tex.1994); Crim, 823 S.W.2d at 594. The duty of good faith and fair dealing in the insurance context arises because of the disparity of bargaining power inherent in the insurer-insured relationship as exemplified by the exclusive control that the insurer exercises over the processing of claims. Aranda, 748 S.W.2d at 212.

Despite the Aiellos' argument to the contrary, these concerns simply do not arise in the judgment creditor--judgment debtor context. The Aiellos were not left vulnerable by Stewart Title's exclusive control of the situation. Rather, as judgment creditors, they had available a variety of legal remedies by which to collect the money owed them, including...