The bond company issued a surety bond for the dealership. The dealership then entered into an assignment agreement in which the assignee would purchase retail installment contracts from the dealership, and the agreement was conditioned on the transfer of “good title.” Under the agreement, the dealership agreed to obtain a perfected security interest in favor of the assignee and to repurchase the contract if it failed to do so. Later, the dealership failed to secure a perfected interest on a contract, so the assignee sued and obtained a default judgment against the dealership. Afterward, the assignee demanded payment from the bond company. The bond company repeatedly refused the assignee’s demands, so the assignee sued the bonding company, alleging that it was entitled to recover against the bond company because the dealership “failed to meet the statutory bond condition requiring the transfer… of good title.” The assignee moved for summary judgment, arguing that the dealership’s breach “‘support[s] a claim against the surety.’” The bond company challenged, arguing that summary judgment was inappropriate because the initial transfer of the title was sufficient to comply with the bond requirements. However, the assignee disputed this claim because the mere transfer of title was insufficient, and the “transfer of good title” was required. Ultimately, the trial court held in favor of the assignee, and the bond company appealed, alleging that the trial court erred because the assignee’s recovery was not “based on an act or omission on which the bond was conditioned.”
In Sur. Bonding Co. of Am. v. Auto. Acceptance Corp., 674 S.W.3d 580 (Tex. App.—Houston [1st Dist.] 2023, no pet. h.), the court reversed the trial court's judgment and held that the assignee takes nothing. The court stated that a claimant may recover on a surety bond if the claimant obtains a judgment against the dealership; however, such liability cannot be based on a separate agreement without the bond company’s consent but is “determined by the language of the bond itself.” The court held that while the dealership failed to perfect the assignee’s security interest properly, that failure did not affect the condition of the bond that good title must be transferred. Therefore, because the title history demonstrated an “unbroken chain of title,” the dealership did not violate the bond condition requiring the transfer of “good title.” The court reversed the trial court's judgment and held the assignee take nothing.
By Cole Palmer [email protected]
Edited by Hayden Mariott [email protected]
Edited By Ashley Boyce [email protected]