Opinion
NO. 01-21-00692-CV
03-30-2023
SURETY BONDING COMPANY OF AMERICA, Appellant v. AUTOMOBILE ACCEPTANCE CORP., Appellee
Nancy H. Hamren, Coats Rose, P.C., 9 Greenway Plaza, Suite 1000, Houston, Texas 77046, for Appellant. Aaron M. Kappler, Thompson, O'Brien, Kappler & Nasuti, P.C., 2 Sun Court, Suite 400, Peachtree Comers, Georgia 30092, for Appellee.
Nancy H. Hamren, Coats Rose, P.C., 9 Greenway Plaza, Suite 1000, Houston, Texas 77046, for Appellant.
Aaron M. Kappler, Thompson, O'Brien, Kappler & Nasuti, P.C., 2 Sun Court, Suite 400, Peachtree Comers, Georgia 30092, for Appellee.
Panel consists of Justices Goodman, Landau, and Countiss.
OPINION
Julie Countiss, Justice
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"). 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.
Background
Surety Bonding issued a motor vehicle dealer's surety bond for Maz Auto, a used car dealership in Houston, Texas. The pertinent bond provision provides:
The Texas Transportation Code requires a person who wishes to operate as a motor vehicle dealer in the State to obtain a surety bond meeting certain conditions. See Tex. Transp. Code Ann. § 503.033. AAC attached to its petition a copy of the motor vehicle dealer's surety bond for Maz Auto.
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 [i]nstallment [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"). 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."
See Automobile Acceptance Corp. v. Texas Department of Motor Vehicles, Maz Auto Inc., MemberSource Credit Union, and Juan Escutia , Cause No. 2018-14783, in the 55th District Court of Harris County, Texas.
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." (Internal quotations omitted.) AAC renewed its demand, and Surety Bonding again rejected the demand.
AAC attached a copy of Surety Bonding's response to its petition.
AAC further explained that after dismissing certain defendants in the Maz Auto suit, 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:
We take judicial notice of the clerk's record in the Maz Auto suit, which shows that defendants, Escutia and TDMV, were dismissed from the suit in an order signed by the trial court on September 16, 2019. See Tex. Gov't Code Ann. § 22.220(c) ; Harris v. Houston Methodist Hosp. , No. 01-17-00544-CV, 2018 WL 3233329, at *5 n.3 (Tex. App.—Houston [1st Dist.] July 3, 2018, pet. denied) (mem. op.) (taking judicial notice of Harris County District Clerk's records); In re Chaumette , 456 S.W.3d 299, 303 n.2 (Tex. App.—Houston [1st Dist.] 2014, orig. proceeding) ; see also Douglas v. Am. Title Co. , 196 S.W.3d 876, 878 n.1 (Tex. App.—Houston [1st Dist.] 2006, no pet.).
The Court is of the opinion that [Maz Auto] failed to take the necessary steps to secure a validly perfected first priority security interest in the vehicle in favor of [AAC] within thirty (30) days and failed to transfer title of the [v]ehicle and identify the [AAC] as lienholder.
....
[T]his Judgment is based on the acts or omissions for which the [Maz Auto] is required to purchase a surety bond under the Texas Transportation Code Section 503.033.
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. Surety Bonding again rejected AAC's demand.
AAC attached a copy of its third demand to its petition.
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." (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."
Surety Bonding also brought a third-party claim against Maz Auto, but Maz Auto is not a party to this appeal, so the third-party claim is not at issue here. In its third-party claim, Surety Bonding sought "complete indemnification or alternatively, contribution" from Maz Auto based on an indemnity agreement that Maz Auto had executed as consideration for Surety Bonding's issuance of the motor vehicle dealer surety bond on behalf of Maz Auto. In the indemnity agreement, Maz Auto "agreed to indemnify [Surety Bonding] in the event that [Surety Bonding] sustained any loss or expense in connection with having issued the bonds, including all attorney's fees and expenses." Surety Bonding also asserted that it was "entitled to common law indemnity from and against" Maz Auto] for any amount it might be required to pay "on account of Maz Auto's obligations to AAC." The trial court's final judgment reflects that AAC nonsuited its third-party claim against Maz Auto without prejudice to its refiling.
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 [c]ertificate of [t]itle and associated title documents for the [SUV] to the [TDMV] along with an [a]pplication 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.
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 vehicle title to Escutia, which [was] all the applicable statute require[d]"; the default judgment was not based "on a condition of the bond"; the default judgment impermissibly "alter[ed] the terms of the bond"; and AAC's "damages based on [Maz Auto's] failure to repurchase a contract under a financing agreement with the lender [were] not covered" by the bond.
Surety Bonding also filed a cross-motion for summary judgment, asserting that it was entitled to judgment as a matter of law on AAC's claim against it to recover on the motor vehicle dealer's bond. In its cross-motion for summary judgment, Surety Bonding reiterated and expanded on the arguments raised in its response to AAC's summary-judgment motion. According to Surety Bonding, the "undisputed facts reflect[ed] that what Maz [Auto] did was defraud AAC by accepting money from AAC based on a purported assignment of the Escutia [c]ontract and then breaching the terms of the Dealer Financing Agreement by refusing to repurchase the Escutia [c]ontract as it was contractually required to do under the terms of the [assignment agreement] after AAC learned that Maz [Auto] had also sold the Escutia [c]ontract to another finance company, MemberSource." But Maz Auto correctly transferred title to Escutia, as shown by the certified title history, a copy of which Surety Bonding attached to its motion.
Surety Bonding further noted that "[a] motor vehicle dealer's bond is not a general liability insurance policy." And it asserted that a motor vehicle dealer's bond "does not cover the situation where a dealer refuse[d] to repurchase an installment contract from its finance company and ha[d] in fact delivered title to the purchaser of the vehicle." Thus, according to Surety Bonding, the default judgment against Maz Auto "was not based on a condition of the bond," and AAC was not entitled to recover on the motor vehicle dealer's bond.
In its response to Surety Bonding's cross-motion for summary judgment and its reply to Surety Bonding's response to AAC's summary-judgment motion, AAC maintained that Surety Bonding relied on the erroneous assumption "that Maz Auto's delivery of title to Escutia satisfie[d] the statutory ... bond requirements." AAC pointed out that Texas Transportation Code section 503.033(b)(2)(B) did not simply require "transfer of title to the purchaser" but "transfer of ‘good title.’ " AAC argued that Maz Auto did not transfer good title because "[a]lthough Maz Auto delivered a title to Escutia, the title listed [MemberSource] as the first lienholder instead of AAC." Because the title was a product of fraud, according to AAC, it was "void or voidable," not "valid and marketable." AAC also asserted that the default judgment nunc pro tunc in the Maz Auto suit was "conclusive of [Surety Bonding's] liability." According to AAC, "the mere fact that [it] included allegations" in the Maz Auto suit that Maz Auto had breached the assignment agreement by failing to repurchase the Escutia contract, "d[id] not mean that the default judgment [in the Maz Auto suit] was based on the failure to repurchase" because "Maz Auto's failure to transfer good title was a sufficient breach of the bond and the statutes to justify the default judgment."
After a hearing, the trial court signed an order denying Surety Bonding's cross-motion for summary judgment and a judgment granting AAC's summary-judgment motion and awarding AAC damages in the amount of "$16,385.65, plus interest in the amount of $6,152.78 through November 9, 2020 and continuing thereafter at the rate of $2.81 per day," attorney's fees in the amount "of $7,123.49 incurred prior to the commencement of th[e] cause," and "attorney[’s] fees pursuant to [ Texas Civil Practice and Remedies Code section 38.001 ]" upon submission of evidence in support of the award.
Following the submission of AAC's attorney's-fees evidence, the trial court signed a "Stipulation and Order Regarding ‘Amount’ of Attorney's Fees." The parties stipulated that $15,000.00 constituted a "reasonable amount of attorney's fee[s]" for AAC's representation in the trial court and that $15,000.00 and $20,000.00 were reasonable contingent attorney's fees for AAC in the court of appeals and the Texas Supreme Court, respectively. They also agreed that nothing in the order "constitute[d] a stipulation by [Surety Bonding] that it [was] liable to AAC for said amounts or that it has any other liability whatsoever to AAC for the matters made the subject" of the suit.
Standard of Review
We review a trial court's decision to grant summary judgment de novo. Lujan v. Navistar, Inc. , 555 S.W.3d 79, 84 (Tex. 2018) ; Valence Operating Co. v. Dorsett , 164 S.W.3d 656, 661 (Tex. 2005). To the extent our analysis includes issues of statutory construction, we also review those issues de novo. See Silguero v. CSL Plasma, Inc. , 579 S.W.3d 53, 59 (Tex. 2019).
Although a denial of a summary-judgment motion is generally not appealable, we may review the ruling when both parties have moved for summary judgment and the trial court grants one motion and denies the other. Tex. Mun. Power Agency v. Pub. Util. Comm'n of Tex. , 253 S.W.3d 184, 192 (Tex. 2007) ; Fallon v. Univ. of Tex. MD Anderson Cancer Ctr. , 586 S.W.3d 58, 63 (Tex. App.—Houston [1st Dist.] 2019, pet. denied). In our review of such cross-motions, we review the summary-judgment evidence presented by each party, determine all issues presented, and render the judgment that the trial court should have rendered. Tex. Mun. Power Agency , 253 S.W.3d at 192 ; Fallon , 586 S.W.3d at 63. Each party bears the burden of establishing that it is entitled to judgment as a matter of law. Tarr v. Timberwood Park Owners Ass'n , 556 S.W.3d 274, 278 (Tex. 2018). If we determine that a fact issue precludes summary judgment for either party, we remand the cause for trial. See Univ. of Tex. Health Sci. Ctr. at Houston v. Big Train Carpet of El Campo, Inc. , 739 S.W.2d 792, 792 (Tex. 1987).
To prevail on a matter-of-law summary-judgment motion, the movant has the burden of establishing that there is no genuine issue of material fact and it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c) ; Cathey v. Booth , 900 S.W.2d 339, 341 (Tex. 1995). When a plaintiff moves for summary judgment on its own claim, it must conclusively prove all essential elements of its cause of action. Rhône–Poulenc, Inc. v. Steel , 997 S.W.2d 217, 223 (Tex. 1999). When a defendant moves for summary judgment on a plaintiff's claim, it must either (1) disprove at least one essential element of the plaintiff's cause of action or (2) plead and conclusively establish each essential element of its affirmative defense, thereby defeating the plaintiff's cause of action. Cathey , 900 S.W.2d at 341 ; Fallon , 586 S.W.3d at 63–64. In deciding whether a disputed, material fact issue precludes summary judgment, evidence favorable to the non-movant will be taken as true. Nixon v. Mr. Prop. Mgmt. Co. , 690 S.W.2d 546, 548–49 (Tex. 1985). Every reasonable inference must be indulged in favor of the non-movant and any doubts must be resolved in the non-movant's favor. Id. at 549.
Summary Judgment
In its first issue, Surety Bonding argues that the trial court erred in granting AAC summary judgment and denying it summary judgment on AAC's claim to recover on a motor vehicle dealer's bond because AAC did not recover a judgment against Maz Auto assessing damages based on an act or omission on which the bond was conditioned.
The Texas Transportation Code requires a person who wishes to operate as a motor vehicle dealer in the State to first obtain a "dealer general distinguishing number ... for each location from which the person conducts business as a dealer." TEX. TRANSP. CODE ANN. § 503.021 ; see also S. Ins. Co. v. ADESA Austin , 239 S.W.3d 423, 426 (Tex. App.—Dallas Nov. 2007, no pet.). Among other requirements, an applicant for a dealer general distinguishing number must "provide[ ] to the [TDMV] satisfactory proof that the applicant has purchased a properly executed surety bond .... with a good and sufficient surety approved by the [TDMV]." TEX. TRANSP. CODE ANN. § 503.033(a), (b) ; see also S. Ins. Co. , 239 S.W.3d at 426 ("The Texas Department of Transportation may not issue or renew a dealer general distinguishing number without proof the dealer has obtained a $25,000 surety bond.").
During the time period relevant here, a $25,000.00 bond was required. See Act effective Sept. 1, 1995, 74th Leg., R.S., ch. 165, § 1, 1995 Tex. Gen. Laws 1025, 1531 (amended 2021) (current version at Tex. Transp. Code Ann. § 503.033 ).
Texas Transportation Code section 503.033(b) further provides that:
(b) The surety bond must be:
(1) in a form approved by the attorney general;
(2) conditioned on:
(A) the payment by the applicant of all valid bank drafts, including checks, drawn by the applicant to buy motor vehicles; and
(B) the transfer by the applicant of good title to each motor vehicle the applicant offers for sale.
TEX. TRANSP. CODE ANN. § 503.033(b). The statute limits the surety's liability to either the amount "of the valid bank drafts, including checks, drawn by the applicant to buy motor vehicles" or the amount "paid to the applicant for a motor vehicle for which the applicant did not deliver good title," plus reasonable attorney's fees. Id. § 503.033(e).
A claimant may recover under a motor vehicle dealer's surety bond if it obtains a judgment against the dealer assessing damages based on an act or omission on which the bond is conditioned. TEX. TRANSP. CODE ANN. § 503.033(d) ; Old Rep. Sur. Co. v. Bonham State Bank , 172 S.W.3d 210, 213 (Tex. App.—Texarkana 2005, no pet.) ; see also S. Ins. Co. , 239 S.W.3d at 426. A surety's liability is determined by the language of the bond itself, subject to the statutory language mandating the bond, which is controlling. Geters v. Eagle Ins. Co. , 834 S.W.2d 49, 50 (Tex. 1992) ; Veros Credit, L.L.C. v. Sur. Bonding Co. of Am. , No. 05-19-00586-CV, 2020 WL 2569911, at *4 (Tex. App.—Dallas May 21, 2020, pet. denied) (mem. op.) ; Gramercy Ins. Co., Inc. v. Auction Fin. Program, Inc. , 52 S.W.3d 360, 363 n.2, 364 (Tex. App.—Dallas 2001, pet. denied).
"Further, a surety's liability cannot be altered by an agreement between the principal and a creditor absent the surety's consent." Lawyers Sur. Corp. v. Riverbend Bank, N.A. , 966 S.W.2d 182, 187 (Tex. App.—Fort Worth 1998, no pet.). If a claimant obtains an adverse judgment against a dealer, the surety may still dispute whether the claimant's damages actually resulted from the dealer's violation of a condition of the bond. Veros Credit , 2020 WL 2569911, at *3 ; see also Old Rep. Sur. Co. v. Reyes , No. 05-01-01881-CV, 2002 WL 1772976, at *3 (Tex. App—Dallas Aug. 2, 2002, pet. denied) (not designated for publication).
In its briefing, Surety Bonding asserts that the default judgment nunc pro tunc in the Maz Auto suit is void and should not be considered in our analysis. The nunc pro tunc judgment purported to add to the original judgment the legal conclusions that Maz Auto had "failed to transfer title of the [v]ehicle" and that the trial court's judgment was "based on the acts or omissions for which [Maz Auto was] required to purchase a surety bond under the Texas Transportation Code Section 503.033." Our review of the trial court record in the Maz Auto suit shows that the nunc pro tunc judgment was signed on November 18, 2019, sixty-three days after a nonsuit of the remaining defendants made the original default judgment final. The trial court thus lacked plenary power when it signed the nunc pro tunc judgment. See Tex. R. Civ. P. 329b(d) (holding that, if no motion for new trial is filed, trial court has plenary power to correct judgment thirty days after judgment is signed). After its plenary power expires, a "court can only correct the entry of a final written judgment that incorrectly states the judgment actually rendered." Escobar v. Escobar , 711 S.W.2d 230, 231–32 (Tex. 1986) ; see also Tex. R. Civ. P. 316 (court may correct clerical mistakes in record of judgment). Otherwise, the nunc pro tunc judgment is void. See Hernandez v. Lopez , 288 S.W.3d 180, 185 (Tex. App.—Houston [1st Dist.] 2009, no pet.) (judgment rendered to correct judicial error after plenary power has expired is void). Because the Maz Auto suit is not before us, we do not decide whether the nunc pro tunc judgment is void. In any event, the additional language consists solely of legal conclusions about the meaning of the applicable statutes, to which we owe no deference. See Silguero v. CSL Plasma, Inc. , 579 S.W.3d 53, 59 (Tex. 2019) (appellate courts review issues of statutory construction de novo). Our analysis thus does not depend on whether we consider the original judgment or the nunc pro tunc judgment in the Maz Auto suit.
We interpret a surety bond using ordinary principles of contract interpretation. Brazda v. Suretec Ins. Co. , No. 01-21-00482-CV, 2022 WL 3363190, at *2 (Tex. App.—Houston [1st Dist.] Aug. 16, 2022, no pet.) (mem. op.) ; N. & W. Ins. Co. v. Sentinel Inv. Grp., LLC , 419 S.W.3d 534, 538 (Tex. App.—Houston [1st Dist.] 2013, no pet.). The Texas Transportation Code requires that a motor vehicle dealer's bond incorporate specific conditions, and one of those statutory conditions is at issue here. See TEX. TRANSP. CODE ANN. § 503.033(b)(2)(B). Thus, we also apply the rules of statutory interpretation in determining the extent to which the bond covers a particular situation. "In interpreting statutes, we must look to the plain language, construing the text in light of the statute as a whole." Silguero , 579 S.W.3d at 59. "The statutory terms bear their common, ordinary meaning unless the text provides a different meaning or the common meaning leads to an absurd result." Id. We may not add words that the statutory language does not contain, omit words that it does contain, or interpret the meaning of a statute's terms in a way that makes them meaningless or superfluous. See id. ; Brazos Elec. Power Coop. v. Tex. Comm'n on Envt'l Quality , 576 S.W.3d 374, 384 (Tex. 2019).
Further, we do not interpret statutory words and phrases in isolation. Worsdale v. City of Killeen , 578 S.W.3d 57, 69 (Tex. 2019). And we consider the statutory framework in which the individual provisions are found. See id. ; Fort Worth Transp. Auth. v. Rodriguez , 547 S.W.3d 830, 838–39 (Tex. 2018).
According to AAC, Maz Auto violated the statutory bond condition that required Maz Auto to transfer "good title" to each motor vehicle Maz Auto offered for sale. See TEX. TRANSP. CODE ANN. § 503.033(b)(2)(B). The Texas Transportation Code does not define "good title." See TEX. TRANSP. CODE ANN. §§ 501.001 –.179. But it requires that a motor vehicle title issued by the TDMV include certain information, including, among other things: (1) each purchaser's name and address; (2) the seller's name and "the municipality and state in which the seller is located"; (3) the vehicle's "year, make, and body style"; (4) the vehicle identification number; (5) "the odometer reading and odometer brand as recorded on the last title assignment for the vehicle," if required; and (6) "the name and address of each lienholder and the date of each lien on the vehicle, listed in the chronological order in which the lien was recorded." Id. § 501.021.
Although neither party mentions it, the Texas Transportation Code is not the only statute to consider in determining whether the sale of a motor vehicle conveyed "good title." Texas Business and Commerce Code chapter two also applies to the sale of motor vehicles. See TEX. TRANSP. CODE ANN. § 501.005 ; Vibbert v. PAR , 224 S.W.3d 317, 321–22 (Tex. App.—El Paso 2006, no pet.) ; First Nat'l Bank of El Campo v. Buss , 143 S.W.3d 915, 920 (Tex. App.—Corpus Christi–Edinburg 2004, pet. denied) ; Hudson Buick, Pontiac, GMC Truck Co. v. Gooch , 7 S.W.3d 191, 197 (Tex. App.—Tyler 1999, pet. denied) ; see also TEX. BUS. & COM. CODE ANN. § 2.105(a) (defining "[g]oods" as "all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities ... and things in action" (internal quotations omitted)). The Texas Transportation Code and the Texas Business and Commerce Code contain potentially conflicting provisions as to the transfer of title and ownership in a motor vehicle sale. Compare TEX. TRANSP. CODE ANN. § 501.073 ("A sale made in violation of [the Texas Transportation Code] is void and title may not pass until the requirements of this chapter are satisfied."), with TEX. BUS. & COM. CODE ANN. § 2.401(b) ("Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place ...."). But the Texas Transportation Code expressly provides that Texas Business and Commerce Code chapters one through nine control over any of its conflicting provisions. TEX. TRANSP. CODE ANN. § 501.005.
Texas Business and Commerce Code chapter two codified Uniform Commercial Code ("UCC") article two. See Howard Indus., Inc. v. Crown Cork & Seal Co., LLC , 403 S.W.3d 347, 349 (Tex. App.—Houston [1st Dist.] 2013, no pet.) ; see also Tex. Bus. & Com. Code Ann. § 2.101 ("This chapter may be cited as [UCC]—Sales.").
Texas Business and Commerce Code chapter two thus informs our understanding of what "good title" means. In particular, Texas Business and Commerce Code section 2.312 provides that absent an explicit disclaimer, a "contract for sale" contains:
(a) ... a warranty by the seller that
(1) the title conveyed shall be good, and its transfer rightful; and
(2) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.
TEX. BUS. & COM. CODE ANN. § 2.312(a). The structure and language of section 2.312(a) demonstrate that whether a seller transfers "good title" is not the same issue as whether the item being sold is subject to a security interest. We also note that the statutory definition of "security interest" makes no mention of title or ownership. See id. § 1.201(35) (" ‘Security interest’ means an interest in personal property or fixtures which secures payment or performance of an obligation."). These provisions indicate that "good title" and "free[dom] from any security interest" are separate considerations.
In its summary-judgment motion, AAC argued that Maz Auto did not transfer "good title" to Escutia because Maz Auto failed to identify AAC as the primary lienholder on the application for certificate of title, and the certificate of title issued for the SUV sold to Escutia identified MemberSource as the first primary lienholder instead. Essentially, AAC's complaint is that Maz Auto failed to perfect AAC's security interest in the SUV sold to Escutia. Having not been perfected, AAC's security interest is not enforceable against third parties without actual notice. Id. § 9.320(b) ("Except as otherwise provided, ... a buyer of goods from a person who used or bought the goods for use primarily for personal, family, or household purposes takes free of a security interest, even if perfected, if the buyer buys: (1) without knowledge of security interest; (2) for value; (3) primarily for the buyer's personal, family, or household purposes; and (4) before the filing of a financing statement covering the goods."). As the default judgment shows, Maz Auto breached the assignment agreement by failing to record AAC's security interest on the certificate of title. But the status of AAC's security interest does not affect the validity of the title transferred to Escutia, and it does not prevent Escutia from transferring good title to the SUV. See id. § 2.403(a) ("A person with voidable title has power to transfer a good title to a good faith purchaser for value."); see also NXCESS Motor Cars, Inc. v. JPMorgan Chase Bank, N.A. , 317 S.W.3d 462, 468 (Tex. App.—Houston [1st Dist.] 2010, pet. denied) (distinguishing between void and voidable title and concluding party who obtained original certificate of title by forging release of lien had void title); Kotis v. Nowlin Jewelry, Inc. , 844 S.W.2d 920, 923 (Tex. App.—Houston [14th Dist.] 1992, no writ) (person who purchased watch with forged check obtained possession of watch through voluntary transaction of purchase and received voidable, rather than void, title to watch, so sale of watch to third-party good faith purchaser conferred good title to watch).
Even though a security interest is not perfected, it still may attach to collateral, which would make it enforceable against the debtor. See In re Hoffman , No. 11-43848, 2012 WL 3070437, at *3–4 (Bankr. E.D. Tex. July 30, 2012) (distinguishing between attachment and perfection of security interest based on Texas Business and Commerce Code section 9.203(b) ).
For purposes of this discussion, we assume that Escutia bought the SUV for personal use.
Texas courts of appeals’ decisions addressing whether circumstances permit recovery against a motor vehicle dealer's surety bond confirm the distinction between the failure to transfer good title, which is covered by the bond, and the mere failure to comply with the Texas Transportation Code, which is not. In Gramercy Insurance Co. v. Arcadia Financial Ltd. , 32 S.W.3d 402 (Tex. App.—Houston [14th Dist.] 2000, no pet.), Arcadia Financial Ltd. ("Arcadia"), the financing company for a used-car dealer, sued the dealer for breach of contract based on the dealer's refusal to repurchase two customer contracts. 32 S.W.3d at 404, 407. As to the first customer, the dealer had failed to deliver the certificate of title to the customer, and Arcadia discovered that the dealer did not have the title because it had had not paid $16,147.00 that it owed to the car manufacturer for the car. Id. at 404. Arcadia paid the manufacturer, obtained clear title, and registered the title in the customer's name. Id. The court of appeals concluded that Arcadia was entitled to recover against the dealer's surety bond based on a default judgment in favor of the financing company for damages arising from the dealer's failure to deliver clear title to its customer. Id. at 407.
As to the second customer, he had sued the dealer for violation of the Texas Deceptive Trade Practices Act, alleging that he was sold a car with an altered odometer. Id. at 408. Arcadia argued that the dealer's failure to deliver good title was at the core of the customer's complaint because the Texas Transportation Code required the dealer to provide the buyer with a written disclosure of the car's odometer reading at the time of sale and that title of the car could not pass until that statutory requirement was met. Id. (citing TEX. TRANSP. CODE ANN. §§ 501.072 –502.073).
The court of appeals disagreed. It concluded that Arcadia was not entitled to recover against the surety bond for the dealer's failure to repurchase the second customer's contract because "[t]he substance of [the second customer's] complaint against the dealer was not failure to deliver good title, but fraud and violation of the [Texas] Deceptive Trade Practices Act for selling a vehicle with an altered odometer." Id. The appellate court observed that "[n]on-compliance with the [Texas Transportation Code] does not override the clear showing of a valid and complete transfer of ownership of an automobile" and that "the purposes of the [Texas Transportation Code] [we]re not defeated" because "the sale of a vehicle without the transfer of a title certificate" was "valid as between the parties." Id. (internal quotations omitted); see also Veros Credit , 2020 WL 2569911, at *4 (where evidence conclusively showed that dealer had actually transferred title to vehicles, dealer's conduct did not violate condition of motor vehicle dealer's surety bond despite showing that dealer may have breached agreement with lender by failing to repurchase contracts after vehicles were not properly titled within thirty days and may have violated Texas law by not timely applying to transfer titles); Gramercy Ins. Co. v. Arcadia Fin. Ltd. , 96 S.W.3d 320, 325 (Tex. App.—Austin 2001, pet. denied) (floor planner, which was required to use its own funds to pay taxes and title fees that dealer should have paid in order to transfer good title to customer, was entitled to recover for those sums under dealer's surety bond but was not entitled to recover against bond for dealer's refusal to repurchase installment contracts in breach of agreement between floor planner and dealer); Gramercy Ins. Co. v. MRD Invs., Inc. , 47 S.W.3d 721, 727 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (dealer's use of insufficient checks to pay floor planner for purchase of cars may have violated floor-plan agreement but did not violate conditions of motor vehicle dealer's surety bond).
A "floor planner" provides financing to car dealers for their inventories. THPD, Inc. v. Cont'l Imports, Inc. , 260 S.W.3d 593, 596 (Tex. App.—Austin 2008, no pet.).
The certified title history attached to Surety Banking's cross-motion for summary judgment showed an unbroken chain of title in the SUV through its transfer to Escutia. We conclude that the undisputed facts conclusively show that Maz Auto did not violate the statutory motor vehicle dealer's surety bond requirement that it transfer good title of the SUV to Escutia. See TEX. TRANSP. CODE ANN. § 503.033(b)(2)(B). For this reason, we hold that the trial court erred in granting AAC summary judgment and denying Surety Bonding summary judgment on AAC's claim to recover on a motor vehicle dealer's bond.
We sustain Surety Bonding's first issue.
Due to our disposition, we need not address Surety Bonding's remaining issue. See Tex. R. App. P. 47.1.
Conclusion
We reverse the trial court's judgment granting AAC summary judgment against Surety Bonding, render judgment granting Surety Bonding summary judgment against AAC, and order that AAC take nothing on its claims against Surety Bonding.