Sur. Bonding Co. of Am. v. Auto. Acceptance Corp.
| Decision Date | 30 March 2023 |
| Docket Number | 01-21-00692-CV |
| Parties | SURETY BONDING COMPANY OF AMERICA, Appellant v. AUTOMOBILE ACCEPTANCE CORP., Appellee |
| Court | Texas Court of Appeals |
On Appeal from the 151st District Court Harris County, Texas Trial Court Case No. 2020-07934
Panel consists of Justices Goodman, Landau, and Countiss.
Appellant Surety Bonding Company of America ("Surety Bonding"), challenges the trial court's rendition of summary judgment in favor of appellee, Automobile Acceptance Corp. ("AAC"), in AAC's suit against Surety Bonding to recover on a motor vehicle dealer's bond it issued for Maz Auto, Inc. ("Maz Auto").[1] In two issues Surety Bonding contends that the trial court erred in denying its summary judgment and granting AAC summary judgment.
We reverse and render.
Surety Bonding issued a motor vehicle dealer's surety bond for Maz Auto, a used car dealership in Houston Texas.[2] The pertinent bond provision provides:
THE CONDITION OF THIS OBLIGATION is such that, if during the effective period of this obligation [Maz Auto] shall pay all valid bank drafts, including checks, drawn by the [Maz Auto] for the purchase of motor vehicles and transfer good title to each motor vehicle that the [Maz Auto] purports to sell, then this obligation shall be void; otherwise to remain in full force and effect.
In its petition, AAC alleged that Maz Auto entered into a "Dealer Agreement for the Assignment of Non-Recourse Sales Contracts" (the "assignment agreement") with AAC, which was valid until revoked. Under the assignment agreement, AAC and Maz Auto agreed that AAC would purchase "valid and enforceable [r]etail [installment [c]ontracts" from Maz Auto that had been entered into by Maz Auto and its customers for the purchase of vehicles. Maz Auto also agreed that "[t]he security interest or ownership interest held by [Maz Auto] in the vehicle[s] [would] be free of any security interest claim, or lien by any third party." (Internal quotations omitted.) Further, as to vehicles for which AAC provided financing, Maz Auto agreed to "take[] all steps to secure a validly perfected first priority security interest in the vehicle[s] in favor of [AAC] no later than thirty (30) days from the date of the contract." And the assignment agreement provided a remedy in case of a breach by Maz Auto: "[If] [a]ny warranties or representations made by [Maz Auto] in the assignment of sale of the contract or in [the assignment] agreement . . . [were] breached or proven to be untrue," Maz Auto agreed that it would "repurchase a contract on demand from [AAC] plus any cost incurred by [AAC]."
According to AAC, its claim against Surety Bonding arose out of Maz Auto's assignment to AAC, pursuant to the assignment agreement, of a May 2017 "[m]otor [v]ehicle [r]etail [i]nstallment [c]ontract and [s]ecurity [a]greement" between Maz Auto and its customers, Juan Escutia and Christina Torres (collectively, "Escutia"), for the purchase and finance of a 2010 Chevrolet Suburban sport utility vehicle (the "SUV"), under which Escutia had financed $16,976.35 (the "Escutia contract"). Even though Maz Auto was required by the assignment agreement to "secure a validly perfected first priority security interest" in the SUV in AAC's favor, Maz Auto failed to do so.
Based on Maz Auto's handling of the Escutia contract in breach of the assignment agreement, AAC filed suit against Maz Auto, Escutia, and the Texas Department of Motor Vehicles ("TDMV"), and in March 2019, it obtained a no-answer default judgment against Maz Auto (the "Maz Auto suit").[3] The original default judgment in the Maz Auto suit, a copy of which AAC attached to its petition in its suit against Surety Bonding, declared that "[AAC] [wa]s entitled to recover from [Maz Auto] its damages in the amount of $ 16,385.65, plus interest and charges in the amount of $ 4,095.86 through November 9, 2018 and accruing thereafter at the rate of $2.81 per day," and it awarded AAC "attorney's fees in the amount of $7,123.49."
Based on the default judgment in its favor, AAC sent a written demand to Surety Bonding for payment on the bond that Surety Bonding had issued for Maz Auto. Surety Bonding rejected AAC's demand. It responded that AAC was "attempting to assert a claim against the above bond for the principal's failure to comply with the funding arrangement" and thus "did not qualify as a party that c[ould] assert a claim against the bond."[4] (Internal quotations omitted.) AAC renewed its demand, and Surety Bonding again rejected the demand.
AAC further explained that after dismissing certain defendants in the Maz Auto suit,[5] the trial court granted AAC's Motion for Entry of Judgment Nunc Pro Tunc and signed a default judgment nunc pro tunc on November 18, 2019, a copy of which AAC attached to its petition. The judgment nunc pro tunc added the following language:
AAC included a copy of the default judgment nunc pro tunc in a third demand to Surety Bonding for payment on the bond that Surety Bonding had issued for Maz Auto.[6] Surety Bonding again rejected AAC's demand.
After explaining how it obtained the default judgment nunc pro tunc against Maz Auto, AAC alleged in its petition that it was entitled to recover against the bond issued by Surety Bonding because Maz Auto had failed to meet the statutory bond condition requiring "the transfer by the [dealer] of good title to each motor vehicle the applicant offers for sale."[7] (Internal quotations omitted.) AAC explained that "Maz Auto failed to meet that condition by failing to transfer title of the vehicle to [AAC] as Maz Auto was contractually obligated to do" under the assignment agreement, "thus forcing [AAC] to use its own funds in order to get compensated for Maz Auto's failure to transfer title." According to AAC, Maz Auto's breach of the assignment agreement also violated Texas Transportation Code section 503.033(b)(2)(B) "because it [wa]s based on Maz Auto's failure to meet" that statutory condition. For those reasons, AAC sought to recover against the bond issued by Surety Bonding to Maz Auto, and it also requested "an award of reasonable and necessary attorney's fees."
Surety Bonding answered, generally denying the allegations in AAC's petition, and "specifically den[ying]" that the default judgment in the Maz Auto suit "[wa]s based on an act or omission" on either of the bond conditions required by Texas Transportation Code section 503.033. According to Surety Bonding, because Maz Auto transferred title of the SUV to Escutia, Maz Auto "did not violate a condition" of the bond. Instead, Maz Auto defaulted under the assignment agreement by "fail[ing] to repurchase the retail installment contract at issue."[8]
AAC moved for summary judgment on its claim against Surety Bonding to recover on the motor vehicle dealer's bond, asserting that it was entitled to judgment as a matter of law. In its motion, AAC explained that when it received the Escutia contract from Maz Auto, it wired $16,402.35 to Maz Auto. Under the assignment agreement, Maz Auto was "obligated to send an unbranded certificate of title with AAC's perfected first priority security interest in the [SUV]," but "Maz Auto never contacted AAC and failed to produce an unbranded certificate of title with AAC's perfected security interest." AAC received only five installment payments under the Escutia contract before the payments stopped. In November 2017, "Maz Auto sold the [SUV] for a second time to Escutia with MemberSource Credit Union" ("MemberSource"). Maz Auto received a check for $16,979.33 from MemberSource, endorsed the check, and collected the funds from the check. "Maz Auto then sent the Texas [certificate of [t]itle and associated title documents for the [SUV] to the [TDMV] along with an [application for [t]itle" identifying Escutia as the SUV's owner and MemberSource as its lien holder. The TDMV issued a certificate of title consistent with the application sent by Maz Auto.
AAC asserted that "[a] claim against a motor vehicle dealership for breach of contract, where [the] failure to deliver good title constitutes the breach, . . . support[s] a claim against the surety for the dealer's failure to deliver good title." And in the Maz Auto suit, "AAC alleged that Maz Auto breached the [assignment agreement] by failing to transfer good title" to the SUV, "thus impairing AAC's ability to perfect its security interest[] in the [SUV]." As a result, "Maz Auto did not transfer good title to [Escutia], the title was defective because it was never sent to [AAC], and [AAC's] security interest was not recorded." Because "Maz Auto failed to deliver title" to AAC, "the designated party," Maz Auto "breached the [assignment agreement] and violated" the statutory bond condition that the dealer transfer "good title to each motor vehicle" that the dealer offers for sale.[9] In its response to AAC's summary-judgment motion, Surety Bonding asserted that a motor vehicle dealer bond "does not cover the situation where a dealer refuses to repurchase an installment contract from its finance company and ha[d] in fact delivered title to the purchaser of the vehicle." Surety Bonding argued that "AAC [was] not entitled to recover against the surety bond" because Maz Auto "deliver[ed] the...
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