Scott Flanagan d/b/a Jefferson Avenue Auto Sales v. Redland Insurance Company--Appeal from Co Civil Ct at Law No 1 of Harris County

Affirmed and Memorandum Opinion filed January 30, 2003

Affirmed and Memorandum Opinion filed January 30, 2003.

In The

Fourteenth Court of Appeals

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NO. 14-02-00152-CV

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SCOTT FLANAGAN D/B/A JEFFERSON AVENUE AUTO SALES, Appellant

V.

REDLAND INSURANCE COMPANY, Appellee

On Appeal from the County Civil Court at Law No. 1

Harris  County, Texas

Trial Court Cause No. 740,955

M E M O R A N D U M O P I N I O N

Appellant Scott Flanagan d/b/a Jefferson Avenue Auto Sales sued appellee Redland Insurance Company in its capacity as surety on the bond of J & S Automotive, an automobile dealer licensed in the State of Mississippi. The trial court granted appellee=s motion for summary judgment and denied appellant=s cross motion for summary judgment on the issue of the reasonableness of attorneys fees sought. In two issues, appellant argues that: (1) the trial court erred in granting appellee=s motion for summary judgment because the claim is covered under the bond; and (2) the trial court erred in overruling appellant=s motion for summary judgment on the issue of attorneys fees. We affirm.

FACTUAL BACKGROUND

Appellant is a licensed wholesale used car dealer in Harris County, Texas. This lawsuit arises from a business transaction between appellant and Sammy Coker, a licensed Mississippi automobile dealer doing business under the assumed name J & S Automotive. In order to comply with Mississippi statutory law, J & S is required to enter into a bond with a surety company conditioned on the faithful performance of its duties. Appellee is a surety company based in Arlington, Texas and incorporated under the laws of Iowa. The company is authorized to do business in the State of Mississippi. In November of 1998, Redland executed and filed with the Mississippi Comptroller a surety bond in the amount of $15,000 obligating itself that in the event that J & S did not fulfill its duties as a ADesignated Agent@ under The Mississippi Motor Vehicle Title Law it would be liable to the extent of the amount of the bond to any member of the public for damages resulting from such failure. The relevant provisions of the surety agreement state:

Whereas, the Principal has been duly appointed a ADesignated Agent@ as provided for in Section 6, Senate Bill 1688, Laws of 1968 known as The Mississippi Motor Vehicle Title act, and such ADesignated Agent@ is required to furnish this bond. . . . THE CONDITION OF THIS OBLIGATION IS SUCH, that if the aforesaid Principal shall well and faithfully perform his duties as such ADesignated Agent@ then, this obligation shall be void, otherwise to remain in full force and effect.

In his original petition, appellant avers that a J & S representative offered to purchase six automobiles by means of a signed envelope draft.[1] Accepting the proposal, appellant released possession of the vehicles and placed the certificates of title in the individual drafts and deposited them in his bank for collection. Discovering shortly thereafter that the institution named on the drafts did not exist, appellant contacted the authorities, who were able to recover all but one of the vehicles. Using the title from the envelope draft, J&S sold the sixth vehicle to Po Boy Motors, which filed suit against both J&S and appellant when law enforcement agents seized the vehicle it had purchased. That litigation resulted in an award of the vehicle to Po Boy Motors and a judgment in appellant=s favor against J&S for $12,000 in damages. After appellee refused to pay the claim, appellant filed the underlying lawsuit.

STANDARD OF REVIEW

The standards for reviewing a motion for summary judgment are well established. See Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). To prevail on a traditional summary judgment motion, a movant must show that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c). When reviewing a summary judgment, we take as true all evidence favorable to the non movant, and we indulge every reasonable inference and resolve any doubts in the non movant=s favor. Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). When both parties move for summary judgment, we review the summary judgment evidence presented by both sides. Commissioners Court v. Agan, 940 S.W.2d 77, 81 (Tex. 1997). When the trial court grants one party=s motion and denies the other=s, the non prevailing party can appeal both the summary judgment rendered against it, and the denial of its own motion. Holmes v. Morales, 924 S.W.2d 920, 922 (Tex. 1996).

THE BOND CLAIM

First, we address whether the trial court erred in granting appellee=s motion for summary judgment. The construction of a surety agreement is a question of law for the court. G.H. Bass Co. v. Dalsan Properties Abilene, 885 S.W.2d 572, 576 (Tex. App.CDallas1994, no writ). Because the Mississippi Legislature has seen fit to require that motor vehicle dealers carry this bond, appellee characterizes the bond in question as a statutory bond. When a bond is statutorily mandated, the statute is necessarily part of the bond and, thus, controlling. Gramercy Ins. Co. v. Arcadia Fin. Ltd., 32 S.W.3d 402, 405B06 (Tex. App.CHouston [14th Dist.] 2000, no pet.). However, all of the cases relied upon by appellee concern bond requirements of Texas and federal law.[2] Appellant does not cite to any authority standing for the proposition that a foreign statute becomes part of a bond when construed by Texas courts. This distinction, however, is ultimately inconsequential, because we nevertheless find that the law of the State of Mississippi controls, as the parties incorporated its statutes into the bond by reference. Owen v. Hendricks, 433 S.W.2d 164, 166 (Tex. 1968). The liability of a surety is determined by the language of the bond, and the bond in this case specifically states that the Mississippi statutory provisions will trigger the liability of the surety. See Howze v. Sur. Corp. of Am., 584 S.W.2d 263, 266 (Tex.1979); Augusta Court Co Owners=Ass=n v. Levin, Roth & Kasner, 971 S.W.2d 119, 123 (Tex. App.CHouston [14th Dist.] 1998, pet. denied). Thus, whether the bond is statutory and incorporates Mississippi law or whether the parties specifically incorporated its law by reference, the law of that state governs our interpretation of the bond.

Having found that Mississippi law controls, we now determine its application under the facts of this case. The Mississippi Code provides that:

(2) Every licensed dealer as defined in this chapter, shall be a designated agent of the State Tax Commission. Such dealers may perform their duties under this chapter either personally or through any of their officers or employees. Such dealers or persons shall enter into a bond with a surety company authorized to do business in this state as surety thereon, payable to the State of Mississippi in a sum to be determined by the commission, but in no case to be less than Fifteen Thousand Dollars ($15,000.00), conditioned for the faithful performance of their duties under this chapter. SEC. 63 21 13.[3]

The Mississippi Supreme Court has noted that the surety will not be held liable unless the dealer fails to perform its statutory obligations as designated agent of the Tax Commission. McBride v. Aetna Cas. & Sur. Co., 583 So. 2d 974, 975 (Miss. 1991). Addressing the scope of the statutory duties of the motor vehicle dealer, the court found that the surety executing a Mississippi bond makes itself liable to any member of the public to the extent of the amount of the bond for damages resulting from failure of the dealer to furnish a buyer of a car with a clear title to the vehicle. Id; see also Woodson v. Tom Brooks Auto Sales, Inc. & John Deere Ins. Co., No. 96-CA-00699-COA, 1998 Miss. App. LEXIS 638, at *9 (Miss. Ct. App. Aug. 4, 1998) (not designated for publication) (noting that only when a dealer fails to furnish clear title to the buyer of a car does the surety=s liability arise).

Thus, according to the Mississippi Supreme Court=s jurisprudence, the fraud of a dealer in obtaining the vehicle does not trigger the surety=s duty to perform under the obligations of the bond. As designated agent of the Tax Commission, a Mississippi motor vehicle dealer does not have a statutory obligation under the Mississippi Motor Vehicle Title Law to refrain from the type of conduct at issue in the underlying suit.

  THE ATTORNEY=S FEES CLAIM

Invoking the provisions of the Civil Practices and Remedies Code, appellant requested summary judgment in his favor on the issue of reasonable attorney=s fees. See Tex. Civ. Prac. & Rem. Code Ann. '10.002(a)(8) (noting that a person may recover reasonable attorney=s fees from an individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for an oral or written contract). Having found that summary judgment is proper on the bond claim, we overrule appellant=s point of error on the accompanying attorneys fees issue.

CONCLUSION

For the foregoing reasons, the judgment of the trial court is affirmed.

/s/ Eva M. Guzman

Justice

Judgment rendered and Memorandum Opinion filed January 30, 2003.

Panel consists of Justices Edelman, Seymore, and Guzman.

[1] In an envelope draft, the selling dealer places the title and other documents in an envelope and deposits them with his bank which forwards the envelope and its contents to the purchasing dealer=s bank. The purchasing dealer verifies the accuracy and completeness of the documents and then orders its bank to pay the selling dealer for the draft. EZ Auto, L.L.C. v. H.M. Jr. Auto Sales, No. 04 01 00820 CV, available at 2002 WL 1758315, *1 (Tex. App.CSan Antonio 2002, no pet h.) (not designated for publication)

[2] Geters v. Eagle Ins. Co., 834 S.W.2d 49, 50 (Tex. 1992) (involving declaratory judgment action brought to determine maximum liability on bond required by the Texas Motor Vehicle Dealer=s Bond Statute); Howze v. Sur. Corp. of America, 584 S.W.2d 263, 266 (Tex. 1979) (involving bond required by the Texas Mobile Homes Standards Act); Fid. & Deposit Co. of Maryland v. Wellington Trade, Inc., 640 S.W.2d 698, 700 (Tex. App.CHouston [14th Dist.] 1982. no writ) (involving bond limiting liability of surety to those for whom principal acted as a freight forwarder as defined in Shipping Act, 1916, '' 1, 44(c), 46 U.S.C.A. ''801, 841b(c)).

[3] Under Texas Law, motor vehicle dealers are required by statute to obtain a $25,000 surety bond from an approved surety to guarantee: (1) its payment of all valid bank drafts drawn by it to buy motor vehicles; and (2) the delivery of good title for all motor vehicles sold by it. See TEX. TRANS. CODE ANN. ' 503.033 (Vernon 1999).