Opinion
No. 05-19-00586-CV
05-21-2020
VEROS CREDIT, L.L.C., Appellant v. SURETY BONDING COMPANY OF AMERICA, Appellee
On Appeal from the 191st Judicial District Court Dallas County, Texas
Trial Court Cause No. DC-16-07952
MEMORANDUM OPINION
Before Justices Myers, Whitehill, and Pedersen, III
Opinion by Justice Whitehill
Appellant Veros Credit, L.L.C. (Lender), a car loan lender, obtained a default judgment against a motor vehicle dealer. It then sued appellee Surety Bonding Company of America (Surety) on the dealer's surety bond, claiming that the default judgment awarded damages based on the dealer's failure to transfer good title to two motor vehicles the dealer sold. Lender and Surety filed competing summary judgment motions, and the trial court rendered a take-nothing summary judgment against Lender. Lender appeals.
We affirm because the evidence conclusively proved that the dealer transferred title to the two motor vehicles in question and thus did not violate a bond condition. Accordingly, making Surety liable for the default judgment would impermissibly alter the surety bond's terms.
I. BACKGROUND
A. Facts
We draw the facts from the summary judgment evidence unless otherwise indicated.
1. The Parties and Their Contracts
MillenniumInv.com, LLC (Dealer) was a Texas licensed motor vehicle dealer. Surety issued a $25,000 dealer surety bond naming Dealer as principal, effective June 1, 2015, through May 31, 2017. The bond tracked the Texas Transportation Code by providing that Surety's obligation would be void if Dealer (i) paid all valid bank drafts, including checks, that it drew to purchase motor vehicles and (ii) transferred good title to each motor vehicle it purported to sell. See generally TEX. TRANSP. CODE § 503.033(b)(2) (prescribing bond's conditions).
In April 2015, Dealer entered a Master Dealer Agreement (MDA) with Lender. The MDA set the terms on which Lender would buy motor vehicle retail installment sales contracts from Dealer. Under MDA § 5(c), Dealer promised to repurchase a contract from Lender for the unpaid balance if
[t]he Motor Vehicle is not properly registered and/or titled, in such manner as required under applicable law and regulations to perfect the
first priority security interest of [Lender] as legal owner or lienholder of subject Motor Vehicle within thirty (30) days of the sale date of Contract by DEALER to [Lender.]Section 5 further provided that Dealer would be in default if it failed to pay Lender the unpaid balance within seven days after notice "by [Lender] of its intention to have the Contract repurchased."
2. The Two Auto Sales at Issue
Dealer failed to repurchase two installment contracts, which the parties call the Canady Contract and the Dorsey Contract.
On September 28, 2015, Dealer sold a vehicle to Milton Canady and assigned the Canady Contract to Lender. According to affidavit testimony, Dealer failed to (i) "timely apply" in Canady's name to register the vehicle and (ii) timely perfect Lender's purchase money security interest. On December 4, 2015, Lender demanded that Dealer repurchase the Canady Contract, but Dealer failed to do so. The Canady vehicle title was issued on December 28, 2015, and it listed Canady as the owner and Lender as the first lienholder.
Although the affidavit also recites that Dealer "failed to transfer good title to the Canady Vehicle," Lender does not rely on this evidence on appeal. To the contrary, Lender's opening brief avers that a Texas certificate of title for the Canady vehicle was issued on December 28, 2015.
Also on September 28, 2015, Dealer sold a vehicle to Tremetrice Dorsey and assigned the Dorsey Contract to Lender. There was affidavit testimony that Dealer failed to (i) "timely apply" in Dorsey's name to register the vehicle and (ii) timely perfect Lender's purchase money security interest. In November 2015, Lender demanded that Dealer repurchase the Dorsey Contract, but Dealer failed to do so. The Dorsey vehicle title was issued on January 12, 2016, and it listed Dorsey as the owner and Lender as the first lienholder.
Although the affidavit also recites that Dealer "failed to transfer good title to the Dorsey Vehicle," Lender does not rely on this evidence on appeal. To the contrary, Lender's opening brief avers that a Texas certificate of title for the Dorsey vehicle was issued on January 12, 2016.
3. Lender's Default Judgment Against Dealer
Lender sued Dealer and an alleged guarantor of Dealer's obligations, alleging that Dealer breached the MDA by failing to repurchase the Canady and Dorsey Contracts (and one other contract not at issue in this suit).
The trial court rendered a default judgment against Dealer and the guarantor for $9,007.96 in damages regarding the Canady Contract, $7,484.05 in damages regarding the Dorsey Contract, and attorneys' fees.
B. Procedural History
After obtaining the default judgment against Dealer, Lender sued Surety on Dealer's surety bond, alleging that the default judgment awarded Lender damages proximately caused by Dealer's failure to transfer good title to the motor vehicles.
Surety answered.
Lender filed a summary judgment motion and an amended summary judgment motion. Surety filed a cross motion asserting both traditional and no-evidence grounds. Each side responded to the other's motion.
The trial court denied Lender's amended summary judgment motion and later signed a take-nothing summary judgment in Surety's favor. Lender appealed.
II. STANDARD OF REVIEW
We review a summary judgment de novo. Trial v. Dragon, 593 S.W.3d 313, 316 (Tex. 2019).
If both parties move for summary judgment, each bears the burden of demonstrating that it is entitled to judgment as a matter of law. Dallas Cent. Appraisal Dist. v. Mission Aire IV, L.P., 279 S.W.3d 471, 473 (Tex. App.—Dallas 2009, pet. denied). We review both sides' evidence and render the judgment that the trial court should have rendered. Trial, 593 S.W.3d at 316-17.
When we review a traditional summary judgment in favor of a defendant, we determine whether the defendant conclusively disproved an element of the plaintiff's claim or conclusively proved every element of an affirmative defense. Ward v. Stanford, 443 S.W.3d 334, 342 (Tex. App.—Dallas 2014, pet. denied). We take evidence favorable to the nonmovant as true, and we indulge every reasonable inference and resolve every doubt in the nonmovant's favor. Ortiz v. State Farm Lloyds, 589 S.W.3d 127, 131 (Tex. 2019).
To win summary judgment on its own cause of action, a plaintiff must establish every element of its claim as a matter of law. Ohio Casualty Ins. Co. v. Time Warner Entm't Co., L.P., 244 S.W.3d 885, 888 (Tex. App.—Dallas 2008, pet. denied).
III. ANALYSIS
Lender's first issue argues that the trial court erred by denying Lender's summary judgment motion. Its second issue argues that the trial court erred by granting Surety's motion. We consider both issues together.
A. Applicable Law
A motor vehicle dealer must secure a dealer general distinguishing number from the Texas Department of Transportation. TEX. TRANSP. CODE § 503.021; S. Ins. Co. v. ADESA Austin, 239 S.W.3d 423, 426 (Tex. App.—Dallas 2007, no pet.). The Department may not issue a number to a dealer without proof that the dealer has obtained a $25,000 surety bond. TRANSP. CODE § 503.033(a). The surety bond must be conditioned on
(A) the payment by the [dealer] of all valid bank drafts, including checks, drawn by the [dealer] to buy motor vehicles; andId. § 503.033(b)(2). Although a surety's liability is determined by the bond's language, the statutory language is made part of the bond and is controlling. Gramercy Ins. Co., Inc. v. Auction Fin. Program, Inc., 52 S.W.3d 360, 363 n.2, 364 (Tex. App.—Dallas 2001, pet. denied).
(B) the transfer by the [dealer] of good title to each motor vehicle the [dealer] offers for sale.
The Transportation Code defines the elements of a claim on a dealer's surety bond: A person may recover against a surety bond if he obtains against a dealer "a judgment assessing damages and reasonable attorney's fees based on an act or omission on which the bond is conditioned." Id. § 503.033(d).
A § 503.033 surety bond is a judgment bond, meaning the surety is liable for a judgment based on a specific statutory violation covered by the bond. S. Ins. Co., 239 S.W.3d at 427. A judgment bond surety is bound by a default judgment against the principal even if the surety did not have notice of the suit against the principal. Id. The default judgment is conclusive of the surety's liability absent evidence of fraud, collusion, or that the default judgment altered the bond's terms. Id.
This case focuses on whether the default judgment altered Surety's bond's terms. That is, once a dealer suffers an adverse judgment, its surety may dispute whether the dealer actually violated the bond's conditions and thereby damaged the judgment creditor. See Old Republic 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) (surety may contest "whether the principal's conduct violated a condition of the bond").
In an illustrative case, a bank's default judgment against a dealer expressly recited that the dealer failed to transfer good title to vehicles it had sold, resulting in damages to the bank. Old Republic Sur. Co. v. Bonham State Bank, 172 S.W.3d 210, 217 (Tex. App.—Texarkana 2005, no pet.). The bank sued the surety on the dealer's bond and won summary judgment despite the surety's evidence that the bank's damages actually resulted from the dealer's failure to repay loans rather than from its failure to transfer good title to vehicles. The court of appeals reversed the summary judgment, holding that there was a genuine fact issue regarding whether the default judgment altered the bond's terms. Id. at 218-19.
In another relevant case, a bank and a dealer agreed to a judgment expressly reciting that the dealer had failed to pay valid bank drafts for motor vehicle purchases. Lawyers Sur. Corp. v. Riverbend Bank, N.A., 966 S.W.2d 182, 184 (Tex. App.—Fort Worth 1998, no pet.). The bank then sued the surety on the dealer's bond and won a judgment after a bench trial. The court of appeals reversed and rendered a take-nothing judgment against the bank because the trial evidence established that the dealer had not failed to pay any valid bank drafts but rather had simply defaulted on promissory notes, which did not violate a bond condition. Thus, the judgment altered the bond's terms and did not bind the surety. Id. at 187-88; see also Gramercy Ins. Co. v. Auction Fin. Program, Inc., 52 S.W.3d at 368-69 (examining underlying case record to determine whether judgment against dealer was actually for dishonored checks drawn to buy motor vehicles).
B. Did the evidence conclusively prove that Lender's default judgment against Dealer altered the surety bond's terms?
Yes. The evidence conclusively established that Dealer actually transferred title to the Canady and Dorsey vehicles, so it didn't violate a bond condition. Although Lender adduced evidence that Dealer (i) may have breached the MDA by failing to repurchase the contracts after the vehicles weren't properly titled within thirty days and (ii) may have violated Texas law by not timely applying to transfer the titles, those omissions didn't violate bond conditions. Thus, the default judgment altered the surety bond's terms by imposing liability on Dealer even though it transferred title to the vehicles.
Although we generally address no-evidence summary judgment grounds first, see Shih v. Tamisiea, 306 S.W.3d 939, 945 n.8 (Tex. App.—Dallas 2010, no pet.), addressing Surety's traditional grounds is more expedient in this case because it allows us to consider all of the summary judgment evidence, see Trial, 593 S.W.3d at 316-17.
1. The Evidence
The evidence shows that the vehicle titles were transferred to the purchasers about three months after the sales—and about four months before Lender moved for default judgment against Dealer:
• Affidavit testimony shows that Canady and Dorsey bought their vehicles from Dealer on September 28, 2015.
• Dealer and Canady signed a title application on November 27, 2015. Dealer and Dorsey signed a title application on December 9, 2015.
• Title application receipts show that the Canady title was applied for on December 21, 2015, and the Dorsey title was applied for on January 4, 2016. Both receipts list Dealer as the previous owner.
• Record request responses from the Texas Department of Motor Vehicles show that title was issued to Canady on December 28, 2015, and to Dorsey on January 12, 2016. Both titles listed Lender as first lienholder.
• Lender admitted in interrogatory responses that it received the Canady and Dorsey title certificates on approximately January 5 and 9, 2016, respectively.
• Lender moved for default judgment against Dealer on May 13, 2016.
Lender doesn't dispute the foregoing facts but focuses on other evidence:
• The MDA required Dealer to repurchase an installment contract upon Lender's demand if the vehicle wasn't properly titled so as to perfect Lender's security interest within thirty days after Dealer sold the contract to Lender.
• Affidavit evidence shows that (i) the Canady and Dorsey vehicles weren't properly titled within thirty days after Dealer sold the contracts to Lender; (ii) Lender demanded that Dealer repurchase those contracts; and (iii) Dealer didn't comply.
2. Applying the Law to the Evidence
As previously noted, a surety's liability is determined by the bond's language, subject to the mandating statute's controlling effect. Gramercy Ins. Co. v. Auction Fin. Program, Inc., 52 S.W.3d at 363 n.2, 364. Accordingly we apply § 503.033 to the undisputed facts. In so doing, we start with the statute's plain language and, absent ambiguity, give the statute its plain meaning. Tex. Dep't of Criminal Justice v. Rangel, 595 S.W.3d 198, 210 (Tex. 2020).
The bond must be conditioned on "the transfer by the [dealer] of good title to each motor vehicle the [dealer] offers for sale." TRANSP. CODE § 503.033(b)(2)(B). This provision's meaning is plain—if the dealer transfers good title to the vehicle's purchaser, the condition is satisfied; if it doesn't, the condition is violated, and the surety is liable on the bond for judgment damages based on the dealer's failure. See id. § 503.033(d).
Although we may not add words not implicitly contained in the statutory language, we think it is implicit that the dealer need not transfer title to a vehicle absent a sale. See Lee v. City of Houston, 807 S.W.2d 290, 294-95 (Tex. 1991) ("A court may not judicially amend a statute and add words that are not implicitly contained in the language of the statute.").
Here, the evidence shows that Dealer transferred title to the two vehicles in question three months or so after the purchase date. But § 503.033(b)(2)(B) doesn't impose a deadline for the title transfer to occur or even for the dealer to apply for the transfer. Thus, based on § 503.033's plain language, we conclude that the evidence establishing that Dealer transferred the titles to Canady and Dorsey proves conclusively that Dealer didn't violate a bond condition despite Lender's default judgment.
Lender doesn't contend that the titles weren't "good title," so that part of the bond condition is not at issue.
Lender argues that Dealer violated the bond condition because it applied for the title transfers late, thereby both breaching the MDA and violating Texas law. But § 503.033's plain language imposes no deadline on the dealer to apply for title transfers, nor does it make such a deadline a bond condition. We see no basis for reading Dealer's contractual duty to properly title the vehicle within thirty days after selling an installment contract to Lender into § 503.033, which doesn't mention dealer agreements or installment contracts.
The parties dispute whether Texas law required Dealer to apply for the title transfers within thirty or forty-five days after the sale, see id. §§ 501.0234(a)(1), 501.145(a)(1); TEX. TAX CODE § 152.069(a), but the evidence shows that Dealer met neither deadline. The Transportation Code also offers dealers a "reasonable time" safe harbor during the time the dealer "is making a good faith effort to comply" with its statutory duty to apply for title transfer, see TRANSP. CODE § 501.0234(f), but there's no evidence about Dealer's efforts either.
However, none of this matters, because § 503.033 doesn't require the dealer to apply for title within any particular time period as a bond condition. The legislature could have conditioned dealer surety bonds on the dealer's application for title transfer within a prescribed time, but it didn't. See id. § 503.033(b)(2)(B). To reach that result we would have to rewrite the statute, which we may not do. See Lippincott v. Whisenhunt, 462 S.W.3d 507, 509 (Tex. 2015) (per curiam) (we presume words not included in statute were "purposefully omitted"); Simmons v. Arnim, 220 S.W. 66, 70 (Tex. 1920) (courts are "not responsible for omissions in legislation").
Lender argues that its reading of § 503.033 is supported by a federal regulation that it contends makes Lender subject to all claims and defenses that a vehicle buyer could assert against a dealer. See 16 C.F.R. § 433.2. We disagree. Even assuming Lender is correct that the federal regulation expands its potential liability to vehicle purchasers, we still see nothing in § 503.033 manifesting a legislative intent that surety bonds cover damages based on tardy title transfers as well as those based on failures to transfer. Such distinctions are the legislature's to make. "The wisdom or expediency of the law is the Legislature's prerogative, not ours." Smith v. Davis, 426 S.W.2d 827, 831 (Tex. 1968).
Both sides rely on two court of appeals cases as supporting their position. We conclude that they support Surety rather than Lender.
In one case, a dealer failed to transfer title to some vehicles, its lender spent over $19,000 to pay taxes on and transfer titles to those vehicles, and the lender obtained a judgment against the dealer for that amount and certain other damages. Gramercy Ins. Co. v. Arcadia Fin. Ltd., 96 S.W.3d 320, 322-23 (Tex. App.—Austin 2001, pet. denied) (Gramercy II). When the lender sued the dealer's surety on its bond, the court of appeals held that the lender could recover the $19,000 that it spent to transfer titles the dealer failed to transfer but not other damages that the lender recovered because the dealer breached its MDA and failed to repurchase the installment contracts. Id. at 325-26. Here, by contrast, Dealer did transfer the titles, and Lender doesn't contend it suffered any damages akin to the $19,000 the lender suffered in Gramercy II.
The other case is similar to the first in both name and analysis. See Gramercy Ins. Co. v. Arcadia Fin. Ltd., 32 S.W.3d 402 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (Gramercy I). A lender paid $16,000 to clear the title to a car the dealer-borrower had sold, and it obtained a judgment against the dealer for that amount and other damages. The court of appeals held that the surety bond covered the $16,000 paid to clear the title but not damages from a different sale involving the dealer's alleged odometer tampering. Id. at 407-09. Again, this case is distinguishable because Dealer transferred the titles and Lender doesn't contend it suffered damages akin to the $16,000 spent in Gramercy I.
3. Conclusion
The evidence conclusively shows that Dealer transferred title to the two vehicles in question. Although Lender obtained a default judgment against Dealer for failing to transfer title within the time specified by the MDA and then breaching the MDA by not rebuying the contracts, this judgment altered the bond terms because the bond condition relating to title transfer contained no deadline. Accordingly, the trial court properly granted Surety's summary judgment motion and denied Lender's. We overrule Lender's two issues.
IV. DISPOSITION
We affirm the trial court's judgment.
/Bill Whitehill/
BILL WHITEHILL
JUSTICE 190586F.P05
JUDGMENT
On Appeal from the 191st Judicial District Court, Dallas County, Texas
Trial Court Cause No. DC-16-07952.
Opinion delivered by Justice Whitehill. Justices Myers and Pedersen, III participating.
In accordance with this Court's opinion of this date, the judgment of the trial court is AFFIRMED.
It is ORDERED that appellee Surety Bonding Company of America recover its costs of this appeal from appellant Veros Credit, L.L.C. Judgment entered May 21, 2020