*1 being positions inconsistent forced into plaintiffs two and allowed the eases INDEMNITY CORPORA- ASSOCIATED suing they before had been determine and Fireman’s Fund Insur- TION wronged. Company, Petitioners, ance III. CONTRACTING, INC., Equip- GTS CAT competing of limitations Statutes balance ment, Inc., Michigan Sewer Construc- potential giving plaintiffs interests: reason- Equipment Co., tion Construction fixing present able time to their claims while Benjamin Phyl- Diponio, Diponio, Mario beyond potential point which defendants Diponio, Catallo, lis and Rose- Guilio they can rest assured that will not be sued mary Catallo, Respondents. past By holding actions. that a cause of accrues, No. 96-0387. accounting malpractice action for latest, plaintiff receives a notice when the Supreme Court of Texas. deficiency, upset of tax the Court has forces account- balance. Because Court Argued Oct. 1997. ing malpractice plaintiffs they to sue before Decided Feb. 1998. injured actually been and to take incon- have Rehearing May 1998. Overruled litigation, positions underlying sistent I dissent.
ABBOTT, Justice, dissenting. malprac-
Why would a client want to file a
tice lawsuit his accountant when the ultimately prevail dispute may
client his Service,
with the Internal Revenue thus mak- malpractice unnecessary? Be-
ing a action today requires
cause the Court such a result. Court,
According taxpayers who
ultimately overturning a tax defi- succeed
ciency must nevertheless sue their accoun- pre- receiving deficiency after
tants expiration of limitations.
clude unnecessary litiga-
I believe this fosters for an accountant to
tion. There is need subject malpractice claim if the Tax
be to a concludes that his client does not owe
Court taxes and the accountant’s advice
additional that tax-
was sound. While the Court states malpractice action and then
payers can file resolved, until tax suit
abate the action hurry-up-and-wait approach is con-
such a expedite litigation
trary to our efforts
process. reasons, set
For these and for the reasons Speetor, I
forth Justice dissent.
278 *2 un- is not entitled indemnification Finally, hold that agreement.
der appeals correctly rejected the the court of that the violated the principal’s claims breached Deceptive Trade Practices Act and *3 duty. fiduciary an informal We therefore judgment of the court of reverse judg- part, rendering affirm in part and parties nothing. take ment that all Background Procedural I. Facts and Contracting, Inc. and Michi- CAT (collective- Company gan Sewer Construction “Contractor”) eight ly agreed to construct pipeline for the Cameron miles of concrete County Supply District No. Fresh Water (“Owner”). required by As the contract and see statute, by Tex. Code Gov’t 2253.021(a),(d); § Code Tex. Loc. Gov’t 252.044(a), bonding Contractor secured guarantee obligations the contract. its under Indemnity Corporation (“Surety”) Associated performance payment bonds nam- issued and return, obligee; in Contractor ing Owner as any agreed indemnify for losses The in- under the bonds. incurred Brownsville, Jeffrey Joseph Rodriguez, A. by demnity agreement signed Guilio Ca- was Houston, Parsons, Tracy Phillips, A. James CAT, tallo, president individually as and Knox, Dallas, for Petitioners. individually as Diponio, Mario Roger Hughes, Harlingen, David E. W. along vice-president Michigan, with their Keltner, Worth, Stapleton, Fort A. Edward partners a respective spouses, business Brownsville, Lockhart, III, Harlingen, Tom (When the corporate entity. context related Respondents. for includes these addi- requires, “Contractor” indemnity agreement.) parties tional Justice, PHILLIPS, delivered the Chief vested agreement The Court, GONZALEZ, opinion of the which authority to determine wheth- with exclusive ENOCH, SPECTOR, BAKER, ABBOTT should be er claim under the bonds HANKINSON, Justices, join. settled, pro- for much. It further how primary presented issue is whether claim, a decision to settle vided duty common law a owes faith,” binding on Con- if “made was appeals, principal. The court of faith to its tractor, obligation to triggering Contractor’s existed, duty holding that this affirmed amount. Surety for the settlement reimburse principal judgment trial court’s provided that Con- Finally, surety for faith conduct. 918 its bad contract of the construction tractor’s default below, forth 580. For the reasons set assignment would constitute a common hold that a does not owe we claims, any, against Owner Contractor’s principal. How- faith to its law security” indem- “collateral for Contractor’s ever, further that because there hold obligation. nity trial court’s support evidence to some began construc- Shortly after Contractor surety in this case did not finding that the tion, condi- that the soil it became concerned satisfy condition of the contractual pipeline. concrete too unstable for indemnity agreement, the tions were parties’ Wolz, pipe a construction consultant whom instability could cause the concrete Lee This investigation, to assist in its ex- hired rupture when settled. Contractor repair operations Owner, monitored the and exam- un- pressed these concerns to which wrote to Mollenhauer ined the leaks. Wolz responsibility the contract bore the der 15, 1991, February that unstable soil con- any design engineers as- errors. impossible it “next to to re- ditions made sound, design sured Contractor that the was pipe being it is laid over strain the while Contractor to continue with con- and ordered distance,” design long so that Owner’s struction. “impossible spec to achieve.” have created an pipeline, After installed the Wolz, experi- construction who had extensive pressure test revealed fourteen leaks. Con- engineer, ence but not an recommended tending design that Owner’s caused the engineering consult with an that Mollenhauer leaks, pay- Contractor demanded additional *4 investigate design firm to issue. Mollen- repairs. any to ments make Owner denied not do so. hauer did fault, blaming instead the leaks on Contrac- pressure performed A test after Mercer tor’s installation. After Contractor still re- repairs completed its revealed twelve more repairs, fused to make Owner declared the representatives, continu- leaks. Contractor’s contract default and called on to pipeline design, ing to blame the leaks on the complete performance the work under its again April Mollenhauer in once met with bond. Stiver, by Maury engineer 1991. retained Surety assigned employee, its Steve Mol- design Contractor to substantiate its flaw lenhauer, lawyer who is both a and a civil claim, presented report his to Mollenhauer engineer, investigate dispute. to After that he meeting. Mollenhauer testified separately representa- Mollenhauer met with report not satisfied with Stiver’s because was Owner, Surety tives of Contractor and pipeline inspect Stiver had not visited the to agreed repair with Owner to the fourteen However, Diponio, the leaks. Mario Michi- leaks, existing reserving parties’ rights vice-president, gan’s testified that Mollen- regarding liability repairs. ultimate for the Surety representative hauer or some other Surety expressly recognized at that time that meeting him at the there was a told investigation its ongoing and thus far engineers were at ease” that Owner’s “inconclusive.” Mollenhauer testified that fault, notify Contrac- and that would Surety agreed perform repairs to imme- making any tor final decision to settle before diately mitigate damages expedite to and to Owner’s claim. investigation, repairs necessarily its as would thereafter, Shortly without notice to Con- require excavation around the leaks. tractor, Surety settled with Owner. notifying After Contractor of its decision $380,000 paid in full Owner settlement perform repairs, Surety to retained a local Also, claims under the bonds. Sure- contracting company, Ussery, to Mercer & ty any might claims it have had released Mercer, competitor transaction, a conduct the work. arising against Owner from the Contractor, earlier had installed different including any rights to contract funds Owner pipeline. Surety agreed section of the same still to Contractor. The settlement owed compensate purport to Mercer on a “time and mate- to af- agreement, did basis, paying plus right pursue rials” Mercer costs fifteen contract fect to Contractor’s percent, any predetermined limit. claims without claims Owner.1 Contractor $425,000 time, February it completed repairs at that Owner owed Mercer $242,000. billing Surety the construction contract. over only, any agreement provided charge, and all [Owner] “Sure- 1. The settlement for itself action, claims, ty only, relinquish agrees damages, to release and and demands causes of for itself may rights it have under the contract aE Surely expenses, now has or hereaf- which [retainage performance respect bond with to performance acquire [arising bond ter out of the Owner],” "Surety funds held and also that added). (emphasis contract].” or construction release, agrees acquit dis- further and forever applications Owner, filed representation. Both sides settling with demand- After Contractor, $835,000 indemnity from for writ of error. ed $380,000 payment, including settlement Duty Faith II. of Good costs,
repair alleged other incidental ex- pay, penses. Contractor refused When A. coun- Surety brought this suit. Contractor argues that a bond against Surety for breach of con- terclaimed principal duty common law owes its tract, fiduciary duty, breach of the breach of recently examined dealing. faith fair dealing, Deceptive duty faith and fair tripartite relationship between bond and Texas Insurance Trade Practices Act Amer surety, principal, obligee Great violations, fraud, Code tortious interference v. North Austin Munici ican Insurance Co. contract, negligent misrepresenta- pal Utility No. District claimed that failed tion. .Contractor American The issue Great informed, keep adequately in- failed to surety owes a common was whether a bond claim of vestigate and assert Contractor’s obligee. duty law error, design protect Contrac- and failed exists, duty reaffirm holding that no such process. during the settlement tor’s interests every relationship that not contractual ed faith. See 908 gives rise trial, nonjury court ruled After a the trial Fischer, English v. (citing at 418 apply DTPA to the transac- that the *5 (Tex.1983)); 521, see also Crim However, that
tion. the trial court found Navistar Int’l Truck & Tractor Co. v. duty a common law had breached (Tex.1992). 591, Co., Transp. 823 S.W.2d the dealing, faith and fair breached good duty Instead, imposed such a this Court has in indemnity by failing to act agreement relationships, such as only special for certain fiduciary duty breached a owed to Con- its insured. See that between an insurer and tractor, article 21.21 of the Insur- violated County Fire Ins. v. National Mut. fraud, Arnold Code, committed tortious ance and Co., 165, 167 We 725 S.W.2d contract, negligent interference with and following in Arnold to the factors considered misrepresentation. court rendered The trial relationship: special find such a Surety indemnity and judgment denying $4,163,305 Michigan in awarding and CAT special rela- context a In the insurance $425,579 the construc- profits lost and under unequal tionship parties’ arises out contract, principals and their tion and the power nature of insur- bargaining and the $700,000 anguish damages. in spouses mental allow unscru- ance contracts which would advantage of their pulous insurers to take n part, appeals court of affirmed hold- The bargaining insureds’ misfortunes entitled to recover ing that Contractor was In claims. ad- or resolution of settlement common law breach of both a in- dition, of action such a cause without Howev- duty contractual faith. deny coverage and arbitrarily surers can er, Contractor’s the court of reduced with no more delay payment of a claim $406,506 princi- profits award to lost owed. penalty than interest on the amount $600,000. It pals’ anguish mental award to company con- An has exclusive insurance duty fiduciary that owed no also held evaluation, processing and trol over the Contractor, of the Insur- that article 21.21 claims. denial apply suretyship not to the ance Code did in Great American Id. concluded relationship, and while there was evi- in the present not these factors are deceptive act because committed dence obligee, DTPA, relationship was not the between that conduct dealing should not duty faith and fair producing any damages cause of Contrac- Because at 418-20. apply. take- See 908 S.W.2d Finally, the court affirmed the tor. they pres- conclude that are Surety on its in- we likewise judgment against nothing relationship surety and between holdings, it ent demnity light of these claim. fraud, to extend principal, we also decline tortious not reach the issues contract, relationship. mis- to this negligent interference faced Importantly, principals are not unequal bargaining position, bond Regarding completely argues disadvantage during bargaining Contractor with the indemnity agree- the terms of the dictated process that underscored claims resolution ment. contends that sureties en- Contractor, Contractor un special duty in Arnold. they joy in which can a “sellers’ market” Arnold, typical insured discussed like the indemnity promulgate agreements form on a company with considerable is a construction take-it-or-leave-it basis. Because contractors Moreover, unlike in sophistication. business perform governmen- bonding must obtain context, indemnify agree the insurance contracts, they tal have no choice but protection provides considerable ment itself accept terms. the sureties’ principal. express terms of to the Under right agreement, Surety not have had the has a of indem
While
ability
negotiate specific
of its in
only
paid
terms
amounts
nity
for settlement
demnity agreement,
by itself
condition,
does
“good faith.” This
like others
justify imposing
special duty.
princi
us,
agreement
is standard. See
before
pal
terms of the
Thus,
Hinchey, 22
& Ins. L.J. at 143.3
Tort
throughout
are
the in
issue here
standard
provides
indemnity agreement
itself
dustry,
widely upheld
and have been
strong financial incentive for sureties to exer
See, e.g.,
v.
courts.
Hess American States
evaluating
settling
cise
(Tex.Civ.
Co.,
548,
Ins.
550-51
specifically recog
claims. This Court has
1979, writ);
App.
Ford v. Aet
— Amarillo
trouble,
expense, delay,
nized that “[t]he
(Tex.
na
n. 1
Ins.
guarantee company
is a
risk
loss
Civ.App. Corpus Christi
writ
ref'd
—
safeguard against an unwarranted
sufficient
n.r.e.); Fidelity
Deposit
&
Co. v. Bristol
Corp.
Ins.
payment.” Central
Works, Inc.,
1160, 1163
Steel & Iron
F.2d
Martin,
(Tex.Civ.App.—
(4th Cir.1983);
and n. 5
Commercial Ins. Co.
ref'd).
1949,writ
Beaumont
Corp.,
Constr.
558 F.2d
Pacific-Peru
(9th Cir.1977);
*6
953
v.
Transamerica Ins. Co.
the
stated in Arnold
because
We
357,
1,
Bloomfield, 401 F.2d
359 n.
362-63
pro-
control over the
insurer has exclusive
(6th
Co.,
Cir.1968); Engbrock v. Federal Ins.
claims,
cessing of
an insurer could “arbitrari-
(5th
784,
Cir.1967); Fidelity
370 F.2d
786
& ly deny coverage
delay payment
of a
Whitson,
751,
Deposit
Cal.App.2d
Co. v.
187
penalty
claim with no more
than interest
6,
(1961);
Cal.Rptr.
10
9-10
United States
the amount owed.”
lous could *7 III. Indemnification against obligee pal’s valid counterclaim A. obligee’s exchange for release of the merit- good The faith claim under the bond. less in- Surety argues that Contractor should apply, not indemnity for would requirement paid repairs for demnify it for the amount it no cash to has contributed since indemnity claim. The to settle Owner’s in- thus not seek the settlement and need right Surety with the agreement vests demnity principal. from the from Contractor obtain reimbursement Surety pays good “in faith.” Find- amounts justify imposing a argument This does in investi- “Surety acted bad faith ing that good faith on sureties. common law of Owner,” settling the claims with gating and prohibit a Existing commercial law duties denying judgment rendered the trial court including disposing of collateral — contract, which Surety commercially unrea- action —in a causes of Surety argues appeals affirmed. the court of sonable manner. See Tex. Bus. & Com.Code support the trial no evidence to that there is 9.102(a), Com- (provisions 9.106 of Uniform finding faith. security of bad apply to a court’s article 9 mercial Code opinion express on whether agreement be- text. settlement 4. We reiterate that the would have indemnity agreement at issue here this case did not and Owner in tween these claims without to release allowed purport claims to release Contractor’s any Contractor. accompanying further action from supra note 1 and the Owner. See
283 nity, promise by to exercise Surety appear to not a Both the trial court and “good faith. equated faith” with lack of have “bad agreement. this is faith” under the While party seeking A to recover under a sound, see, e.g., Fidelity De conceptually all proving of contract bears the burden 1196, Wu, 225, A.2d
posit Co. v.
150 Vt.
552
precedent have
satisfied.
been
conditions
(1988) (“bad faith”
“lack of
1199 n. 4
Co.,
Ins.
651 S.W.2d
Trevino v. Allstate
See
may
interchangeably),
be used
good faith”
1983,
8,
writ
ref'd
(Tex.App.
11
— Dallas
proof
of
on
potentially obscures the burden
n.r.e.);
Bros.
City
Antonio v. Guido
San
of
addressing
faith issue. Before
(Tex.Civ.
Co.,
155, 162-68
460 S.W.2d
Const.
therefore,
Surety’s evidentiary challenge,
n.r.e.);
1970,
App.
writ
ref'd
— Beaumont
proof,
the burden of
as well as
first discuss
City Dal
Tel. Co. v.
Southwestern Assoc.
“good
faith” un
appropriate
definition
819,
hart,
(Tex.Civ.App.—
825
254 S.W.2d
der these circumstances.
n.r.e.).
1952,
Thus, Sure
Amarillo
writ ref'd
proving that it
ty
the burden at trial of
bore
indemnity agreement provides:
The
settling
the claim.5
exercised
right
Surety shall
the exclusive
have
appears
It
from the trial court’s bad-faith
any
to decide and determine whether
may
erroneously placed
finding that it
have
claim, liability,
judgment
suit or
made
faith.
prove
bad
burden
brought against the
or the Indem-
decisions,
which
appellate
There are
any
any
nitors or
one of them on
such
court, suggesting
the trial
have influenced
paid, compro
Bond shall or shall not be
an affirmative defense to
that bad faith is
defended,
mised, resisted,
appeal
tried or
type
of clause at
indemnification under
ed,
thereon,
and the
decision
Ins. Co. America
issue here. See Safeco
made in
shall be final and bind
Gaubert,
274,
(Tex.App.—
829
282
S.W.2d
ing on the Indemnitors.
Bass,
1992,
denied);
Bass v.
Dallas
writ
language requires Surety
This
to exercise
113,
(Tex.App.
Worth
— Fort
settling
good faith
claims to be entitled
1990, writ); Hess v. American States Ins.
pay-
reimbursement from Contractor for the
Co.,
548,
(Tex.Civ.App.—
589 S.W.2d
Thus, good
prece-
ments.
faith is a condition
writ);
1979, no
Ford v. Aetna Ins.
Amarillo
Surety’s right
indemnity.
dent
See
(Tex.Civ.App
. —Cor
Dalton,
Corp.
Centex
n.r.e.).
Indeed,
pus Christi
writ ref'd
(Tex.1992) (“A
precedent
condition
is an
in the trial
parties apparently
concurred
happen
performed
event that must
or be
placement
proof,
court’s
burden
right
before a
can accrue to enforce an obli-
pleading
invoked the
rule
never
gation.”);
European
Criswell v.
Crossroads
54,6
precedent, see Tex.R. Civ. P.
conditions
Ctr., Ltd.,
Shopping
raised bad faith as an affir
and Contractor
(Tex.1990) (terms
that,”
“if,” “provided
like
in its amended answer.
mative defense
or “on condition that”
a condition
indicate
event,
place
the trial court’s
promise).
rather than a
Contractor concedes
proof
assigned
language
ment of the burden of
this Court that the
faith”
Surety casts its eviden-
indemnity agreement
appeal.
no more
as error on
creates
*8
tiary challenge
of bad faith”
Surety’s right
than
for
to indem-
as “no evidence
a condition
Maryland
Fidelity Deposit
v.
indemnity agreement
provides:
Co.
See also
&
5. The
further
of
Wu,
rather than faith, it also faith,”7 challenge not but was and Contractor does made Accordingly, we the risk involved.” wording considering of the issue.' “reasonable posed by par- Payne, the issue as will address 490 at 823. Accord Sira S.W.2d evidence, Riddle, 559, howev- discussing ties. Before 484 S.W.2d Inc. v. Wallace & er, appropriate definition of we examine the (Tex.1972); Gulf, Fe & Santa 561 Colorado faith”) (and conversely, “bad “good McBride, 442, faith” 159 322 Railway v. Tex. Co. under these circumstances. Mitchell’s, (1958); 492, Inc. v. 495 S.W.2d Friedman, 424, 775, 779 Tex. 303 S.W.2d 157 indemnity agreement does not define The (1957). “good faith.” The court of deter- was to act mined standard, recognized have a different We investiga- required to conduct a “reasonable however, given where the indemnitee is ex against and to tion” of the claims authority claims in press to settle equally with that Contractor’s interests treat Corp. v. & Ins. faith.” See Central Surety ar- 918 at 596. of its own. S.W.2d (Tex.Civ. Martin, 773, 224 776-77 S.W.2d that in the context bad gues, refd). 1949, Under App. writ — Beaumont an unreasonable or requires faith more than Martin, indemnity investigation; requires it wilful negligent the sure principal required to reimburse agree improper motive. We misconduct or ... made ty “any all disbursements Surety. it the belief that by it in faith under agreements indemnity construe We so or or was hable for the amount disbursed contract construc the normal rules of under expedient to make necessary or that was American, 908 S.W.2d at tion. See Great disbursements, liability, whether such such course, primary goal, 427. deter Our expediency or not.” Id. necessity or existed City parties’ intent. See Pine mine the gave language that this at 777. We held Co., Spooner Addition hurst Water only by “limited discretion indemnitee Thoreson, (Tex.1968); Fox S.W.2d (quoting of fraud.” Id. Massachu bounds (Tex.1966); Found United Gautieri, 69 R.I. Bonding & Ins. Co. v. setts Carey, 363 ers Ins. Co. v. (1943)). Life 70, 30 further held A.2d (Tex.1962). pub discretion did not violate that this broad public policy, lic but rather advanced appeals, determining The court of investiga- a reasonable interest: requires tion, Insurance on Fireman’s Fund relied unreasonable, wrong or nothing There is Insurance v. Commercial Standard Co. stipulation. public policy, in this juris may lawfully make such Parties sui Standard, a contrac- 589. Commercial bound them.... stipulations, and are property owner for employee tor’s sued the trouble, risk of expense, delay, working at the own- injuries incurred while company is a suffi- guarantee loss to employee, plant. settling After with the er’s against an unwarranted safeguard cient sought carrier indem- the owner’s insurance and, stipulation such a payment; without (plaintiffs employer) nity from the contractor here, guarantee compa- complained of provision. a contractual anything safely could not do business nies the one at indemnity provision This —unlike do, they cheaply as like as the indem- expressly vest issue here —did parties and of the advantage of the evident claims, authority to settle nitee with public. general impose “good faith” as the standard Fidelity New York circumstances, & Cas. Co. (quoting Id. indemnity. these Under *9 (Tex. Harrison, 1002, 274 1004-05 princi- v. S.W. indemnity law applied common Court ref'd)). 1925,writ Civ.App. Worth required the indemnitee is ples, under which — Fort conclusively appeal estab- finding that the evidence adverse on the trial court’s 7. To overcome Watts, Holley 629 proposition. See v. lishes the proposition it bears the a factual for which 694, 696 proof, parly required establish S.W.2d a burden of
285 (cid:127) Co., con- v. 394 fact in the conduct or transaction In Ford Aetna Insurance cerned.”). (Tex.Civ.App. Corpus 693 Christi S.W.2d — 1965, n.r.e.), indemnity agree ref writ d juris in recognize that courts several surety with the exclusive ment vested dictions, indemnity agreements interpreting claims right to determine whether here, have re similar to the one at issue specifical court bond should be settled. The surety a “reasonable” quired the to conduct principles con ly noted that law Fidelity Deposit “[c]ommon v. investigation. See & Co. cerning Works, Inc., claims a who reimbursement 722 F.2d & Iron Bristol Steel (4th Cir.1983); paid by apply 1160, 1166 out it do not Ins. for amounts Transamerica (6th 357, Bloomfield, contracts such as the one here 401 F.2d 363 Co. v. Rather, Cir.1968); court D Bar D Enter involved.” Id. at 698. United States v. (D.Nev. Inc., 1167, only by prises, F.Supp. 772 1170 held that the was limited bad faith, 1991); Guaranty v. Hawaiian Ins. & Co. negligence gross which exceeds or even 12, 767, Higashi, Haw. 675 P.2d 769 67 negligence. Id. The court concluded Tanner, (1984); Kan.App.2d 22 improper motive is an essential element of Hartford 64, 872, (1996); City 880 Port 910 P.2d faith, may by bad and that it be shown a Assocs., George land v. D. & 89 Or. Ward disregard of refusal to learn facts “wilful (1988). 452, 171, App. 175 750 P.2d when available and at hand.” Id. here, indemnity agreement at issue required Texas courts have evidence Other Texas, signed disputes and no one in improper prove motive or fraud to bad Texas law. that it should be construed under suretyship faith context. See Hess v. intent, trying parties’ In to ascertain these Co., 548, American Ins. 589 States therefore, presume they in we should 1979, writ); (Tex.Civ.App. — Amarillo consistently “good tended to define faith” Co., English Century Indem. 342 S.W.2d with the Texas decisions discussed above. 366, 1961, (Tex .Civ.App.—San Antonio Berg See Hardware Dealers Mut. Ins. v.Co. writ). Co., Engbrock See also v. Federal Ins. (Tex.1965) (“Con lund, 309, (5th Cir.1967) 784, (applying 370 F.2d tracting parties judicially generally select a law). Texas adopt clause with the intention of construed approach This is consistent with our con- meaning given ing the which the courts have cept “good faith” in other circumstances. it.”); Luling Oil & Gas Co. v. Humble Oil Guerra, Bridge In Citizens Co. v. 152 Tex. Refining & Tex. (1953), 69-70 we defined (1945) (‘When si faith in paper bad the commercial context: particular subject, lent or obscure as to Knowledge merely usage portion of facts sufficient to law and become a of it and supplement interpret it ordinary prudence cause one of constitute a to make it.”). inquiry, inquiry, failure to make such is not evidence bad faith.... Even We hold that faith” the sure gross negligence thing is not the same ty agreement before us refers to conduct faith, although may bad be evidence fact, improper which is honest free of faith_ prove tending to bad To consti- ignorance or wilful of the facts at motive tute evidence of bad the facts known require proof It of a hand. does “reason reasonably to the taker must be such as by surety. Stating investigation able” form the basis for an inference that proposition conversely purposes knowledge acquiring the instrument with evidentiary particular our review for this he of such facts acted dishonest disre- case, merely faith” means more than “bad gard rights of the of the defendant.... conduct; it re negligent or unreasonable ignorance equivalent is the of bad
Wilful quires proof improper of an motive or wilftd faith be shown and bad ignorance facts. disregard wilful of and refusal to learn the facts when available hand. B. reviewing
See also the evidence under 1.201(19) Tex. Bus. Com.Code (Tex.UCC) (“ point, evi- honesty faith’ means no-evidence we consider all the ‘Good *10 competitor. to cer was Contractor’s direct light in most favorable the dence the Also, Diponio during the Mario testified every prevailing party, indulging reasonable meeting, Surety’s representa- of April 5 one Harbin party’s in that favor. See inference “good case” that (Tex.1970); that there was a Seale, tives stated S.W.2d Surety, fault. engineers were at Lochausen, 151 Tex. Burt v. a short time later. settled the case 194, 199 (1952); Transportation Ins. see also (Tex.1994) Moriel, 10, 24 Co. v. significant There is evidence (“The light in presented, viewed evidence faith, in investigate and settle prevailing party, must most favorable to the decid- not intimate that we would have we do logical inference permit such as to be the trier of issue the same were we ed this reach].”). evaluating “In jury must [that empowered to conduct a factual facts or even required to deter legal sufficiency, we are Nevertheless, we con- sufficiency review. proffered as a mine whether the evidence outlined above is clude that the evidence that would enable whole rises to the level we therefore of bad some evidence people fair-minded to differ reasonable and judgment of the court of affirm the Moriel, 879 in their conclusions.” it relief under insofar as denies light, in conclude that this we 25. Viewed indemnity agreement. is some evidence of bad there C. settling the claim. that, event, any it Surety contends Wolz, a construction Surety retained Lee design required investigate to was not consultant, in investi- to assist Mollenhauer of this case. the circumstances issue under monitored Mercer’s gating the claim. Wolz any defense argues waived It that Contractor examining the leaks repairs pipeline, continuing to “design on error” based During process, Mercer excavated. contract after perform the construction began suspect to that the leaks were
Wolz alleged design flaw. See learning of the caused, by faulty design part, at least Texas v. S & G Regents Univ. Board specifications. He sent a memorandum (Tex.Civ. Constr. February stating Mollenhauer n.r.e.).8 Thus, ref 'd App. writ — Austin soil, impos- unstable is next “[i]t due to the not have raised this could because Contractor being laid pipe while sible to restrain response to Owner’s demand defense recommended long distance.” Wolz over of law was not repairs, Surety as a matter firm engineering “consult with investigate it. required might if this not be case to determine Regents rule Assuming that Board being an im- materials/applieation designed ease, an issue we need applies to this spec to Instead of retain- possible achieve.” decide, Surety of that it relieved disagree firm eval- independent engineering ing an design issue. leaks, obligation investigate that he all Mollenhauer testified uate the design flaw would not alleged training, the Even engineering relied on his own completing the opin- have excused Contractor engineer, and the opinions of Owner’s contract, highly relevant Mercer, nonetheless a it was president of Mercer of Arthur ions respective parties’ during regarding- factor Ussery. Mollenhauer admitted Yet Indeed, Regents rights. under the Board expert what discovery not an on that he was relies, rule, Furthermore, on which Own- both caused the leaks. a claim Owner would have had potential had a engineer and Mercer er’s from the incurred op- any damages Contractor directly of interest. Owner conflict these eircum- design flaw. Under alleged dispute in the and Mer- posed to Contractor which has for the breach following language of his cause of action relies on the 8. place, depriving ... of Regents: already him [but] taken Board of contract, ceasing performance on his any excuse for party its one breaches [W]hen continuing put part. party to an election of other own indicating ceasing performance, action also S.W.2d at 97. See Con Williston operate ed.1968). as a con- (3d to continue will an intention § 1334 tracts, choice, party depriving injured clusive *11 timely. stances, was not Surety wilfully ignore the tor’s demand could not arbitration resolving in claim. Be- no further efforts to enforce design issue Contractor took this, as out- rights cause there is some evidence of it had under whatever arbitration section, previous Surety in is not lined contract. indemnity. to
entitled Surety’s that involve- contends Contractor to back dispute in the caused Owner ment Deceptive Practices Act IV. Trade agreement, arbitration out of an informal By cross-application, argues Contractor rights thereby causing to lose its Contractor by affirming appeals that the court of erred However, contract. under the construction judgment denying recovery the trial court’s anything that there is evidence the DTPA. Contractor contends that under making an earli- to dissuade Contractor by engaging DTPA in violated the demand, any or that er arbitration conduct, unconscionable see Tex. Bus. & Com. right to en- way interfered with Contractor’s 17.50(a)(3), misrepresen- § committing Code agreement. Contractor force the arbitration tations, 17.46(b)(5), concealing § see id. any effort to assert its contract never made 17.46(b)(23). Specifi- information. See id. Owner, en- against through either claims cally, argues Surety negoti- that Contractor through rights of its arbitration or forcement ated with Owner without Contractor’s knowl- ordinary these circum- civil suit. Under consent, edge Surety’s or violation of stances, Surety’s in the investi- involvement so, promise thereby infringing not to do on repairs to make gation and its opportunity Contractor’s to resolve the dis- producing cause of Contrac- cannot be the pute through arbitration. contract claims Own- tor’s loss of its that, appeals The court of while held er. there that was evidence committed act, deceptive there was evidence Fiduciary Duty V. producing such was a violation cause of dam by cross-applica- argues next age to Contractor. 918 at 599. S.W.2d tion that the court of erred hold- need not decide the first issue because we of an informal ing that there is no evidence agree that there is no evidence of causation.9 fiduciary relationship or relation- confidential The construction contract between Owner ship Surety, between Contractor party and Contractor either to authorized duty. reaching the issue of breach of that disputes submit to arbitration. Guilio Catal- in- actions Contractor contends
lo, president, CAT’s told Mollenhauer at rely Surety, to trust and duced Contractor meeting September initial their 1990 that relationship. thereby creating such a pursue Contractor wanted arbitration and already orally engineer that Owner’s had fiduciary duty may An informal agreed approach. to this Catallo further tes- moral, social, purely arise from a domestic Sep- him tified that Mollenhauer told at the confidence, relationship personal of trust and meeting tember would not inter- relationship. generally called confidential fere with Contractor’s efforts resolve the Locke, Thigpen v. See dispute through arbitration. recognizes law the exis “[T]he 25,1990, relationships in those September meeting after tence of confidential On Owner, acquired agreed repair cases ‘in which influence has been Mollenhauer abused, in has been initial which confidence fourteen leaks under reservation betrayed.’” Truck & rights. day, reposed That Crim same Contractor sent Corp., formal, Transp. Int’l for arbitra- Tractor Co. v. Navistar Owner a written demand (Tex.1992) later, (quoting Tex tion the contract. Two weeks Moore, view, Bank Trust Co. v. responded its Contrae- Owner investigation argues at issue. Because 9. Associated also that Joint Venture is not ducted causation, a consumer under the DTPAbecause "ser- evidence of we also do find no provided vice” Venture ended Associated Joint this issue. reach bonds, it con- when Associated issued the before (Tex.1980)). ability to Surety interfered with Contractor’s We do not create this legal rights under the construc- duty lightly, impose To an infor- enforce its however. *12 contract, transaction, by arbitration or oth- tion whether fiduciary mal in a business Accordingly, cannot affirm the relationship of and confi- erwise. we special the trust to, from, prior apart appeals court of for Contrac- judgment must exist of the dence grounds. of the tor on these alternative made the basis suit. Faircloth, Transport See Ins. Co. 269, 280 (Tex.1995). n [*] [*] reasons, we reverse foregoing For the There is no evidence of such part judgment of the court of relationship
preexisting between rendering judgment that all part, affirm support of a confi To its claim Contractor. nothing. parties take relationship, only on Contractor relies dential indemnity agreement contractual OWEN, Justice, concurring and filed a investigating Surety’s conduct HECHT, dissenting opinion, in which indemnity agreement, claim. The Justice, joins. arms-length entered into was an transaction were parties’ for the mutual benefit. There OWEN, Justice, joined by Justice prior dealings between Contractor and HECHT, dissenting. concurring and special relationship Surety justifying a of part join opinion except I for the Court’s agree Accordingly, trust and confidence. we III-B. appeals that with the court of Contractor fiduciary duty. cannot recover for breach for lack of agree I with the standard However, adopted by the Court. of Action VI. Additional Causes applied country has that stan- court present in this to facts such as those dard findings rendered for The trial court also carefully faith. The bal- case and found bad 1) 2) fraud, tortious interfer- Contractor by faith” “good articulation of anced 8) contract, negligent misrep- ence with going if it is to be meaningless is Court challenged these find- resentation. I has done. would misapplied, as the Court appeals, but because that ings in the court improper is no evidence of hold that there judgment for Contractor court affirmed the ignorance of the facts. motive or wilful law bad it did on the basis of common challenge does not not reach them. faith” recognized that The Court findings argues here. that these parties’ indemnity agreement is findings independent áre because equivalent negligence: judg- grounds support the trial court’s surety agreement be- faith” in the “[G]ood ment, Surety, by attacked and have not been to conduct which is honest fore us refers judgment. trial court’s must affirm the we fact, igno- improper motive or wilful free of It of the facts at hand. does rance in McKel This situation discussed investiga- proof “reasonable” require of a Barber, vy v. surety. Stating proposition by tion McKelvy, Surety has not waived its Under evidentiary conversely purposes of ouir independent grounds challenge three case, faith” particular “bad review for this attacking may here. This Court by not them un- merely negligent than or means more ap cause to the court of either remand the conduct; an requires proof reasonable them, consider peals to consider ignorance improper motive or wilful Id. opt in the first instance. them facts. in this ease. the latter Nevertheless, the Court at 285. of action— of these additional causes Each of, most, negli- at mere relies on evidence DTPA cause of action— Contractor’s like gence Associated. claim that centers on Contractor’s pieces of evi- on three rights. As The Court relies its arbitration caused it to lose First, notes that Steve earlier, the Court that dence. there is no evidence discussed Mollenhauer, so, adjuster opportunity the Associated as- an to do and that when CAT claim, finally expert, lis- signed to this not retain an did retain an Associated inde- pendent engineering investigate Surely, firm to his conclusions. Associat- tened However, accept cause of the leaks. Mollenhauer ed’s decision not to the conclusions of dispute during expert an who had not even examined the testified without their meeting, pipeline not evidence of dishonest motive representatives initial CAT’s told they planned engineering disregard him It be hire an or wilful the facts. could design argued firm to itself re- substantiate their claims of Associated should have meeting, expert inspect pipeline, error. but After Mollenhauer sent tained Catallo, is, most, negligence. It follow-up letter to Guilio dated evidence *13 17,1990, September culpability stating: approach does not the level of required the bad faith standard Dear Mr. Catallo: adopted by the Court. during meeting You indicated our on you Second, that intend to seek arbitration the notes that Mercer was a 9/11/90 Court leakage prob- CAT, on the issues whether the competitor suggesting somehow that by design workmanship lem is caused or improper for this reason it was dishonest problems. your position, To rely opinion. substantiate for Associated to on his As you noted, however, planning retaining were both an engineer Mercer is the who attorney experienced in construction mat- repaired pipeline, the thus excavated and and engineering expert. ters and an position opine he was the best as to the Assuming, cause of the leaks. for the sake of the Since deadline for the re- argument, that Mercer did have some com- sponse County to the Cameron Fresh Wa- CAT, petitive-based bias this at most Supply 26, 1990, September ter District is injects negligence an element of into the your position we will need a statement of investigation, dishonesty or wilful disre- respect by Friday, Sep- to the default gard absolutely of the facts. There is 21,1990 tember at the latest. evidence that Associated colluded with Mer- According contemporaneous to Mollenhauer’s regarding opinion. cer the substance of his notes, progress Catallo called him one week Finally, representa- the Court notes that a meeting later and told him that CAT was during April tive of testified that engineering expert “possibly early with an CAT the as However, meeting, Surety’s representatives one of stat- this afternoon.” CAT did not that that present any engineering ed there was ease” report to Associated later, engineers were at fault. The does not parties’ April until six months Court the explain equates how this isolated statement meeting in Houston. At that meeting, Stiver, CAT, to evidence of bad faith. It is unclear from Maury engineer retained testimony point this as to what in the meet- presented his concerning conclusions the in- ing representative this adequacy pipeline of the Associated’s made bedding pipe statement or the context which it was undisputed, however, selection. It alone, testimony, standing made. This can- Stiver had visited the worksite and thus not constitute evidence that Associated’s sub- physical investigation had made of the construction, sequent work, settlement was made with dishon- repair pipeline. or the improper est or motive. rely opin- Associated thus decided to on the Mollenhauer, engi- ion of who himself was an application Under the Court’s neer, Mercer, engineer and Arthur who standard, any that a evidence leaks, repaired excavated and investigation possible not conduct the fullest by poor workmanship. leaks were caused equates only faith. to evidence of bad Not circumstances, Under these Mollenhauer’s does this contradict the “dishonest in fact” independent engineering purports adopt, it failure to retain an test the Court firm than the appears cannot be evidence of dishonest motive to be even more relaxed disregard ap- that the court of “negligence” or wilful of the facts. To the con- standard Moreover, undisputed peals adopted. approach this will trary, agreed it is that CAT evidence, suretyship develop gave tripartite that Associated wreak havoc with Justice, HECHT, opinion of delivered the relationship. recognizes that the Court Court, PHILLIPS, here, in which Chief indemnity provisions at issue standard GONZALEZ, Justice, SPECTOR to settle under which authorized Justices, OWEN, join. enabling claims in are “critical perform efficiently.” 964 S.W.2d sureties to timely perfected appeal, his but Petitioner approach, at 281 & n. 2. Under Court’s late, days transcript was filed thirteen good faith will exist a fact issue on file a motion to extend petitioner did not virtually every by sureties. claim settled transcript filing the within the time for profound im- This will have an obvious and fifteen-day period prescribed by former Rule ability willingness to pact on sureties’ Tex.R.App. 54(c), Consequently, P. the court claims, resulting in needless liti- settle such appeal for want of dismissed the ultimately damaging gation costs explained in jurisdiction. For the reasons underlying public-works pro- interests of the today’s opinion v. Metro Health Miller jects protect. retained to the sureties are — Foundation, 1998 WL - (Tex.1998), argu- hearing oral without
ment, grants petitioner’s applica- the Court *14 error, judgment reverses the tion for writ reasons, I from foregoing For the dissent case appeals, court of and remands the of the portion judgment of the Court’s affirm- petitioner court to determine whether to that take-nothing judgment against Asso- ing the reasonably explain the need extend can indemnity claim. I would ren- ciated on its so, filing transcript, the time judgment on its der for Associated Tex.R.App. appeal. proceed to consider the portion I in that against claim CAT. concur P. 59.1 on its judgment CAT Court’s claims for affirmative relief. Justice, BAKER, ENOCH, joined Justices, HANKINSON,
ABBOTT and dissenting. my dissenting
For the reasons stated v. Metro Health Founda opinion Miller — S.W.2d -, tion, 1998WL (Tex.1998) (Enoch, J., dissenting), I dissent case. judgment Court’s REEVES, Jr., Petitioner, Wayne Morris DEPARTMENT OF CRIMINAL
TEXAS
JUSTICE, INSTITUTIONAL
DIVISION, Respondent. LEVARIO, Appellant, Saul 97-0400.
No. of Texas. Supreme Court Texas, Appellee. STATE
March 1998. No. 08-96-00406-CR. Texas, Appeals Court El Paso. Dec. 1997. Beaumont, Reeves, for Peti-
Wayne Morris tioner. Austin, Morales, Knox, Kaye E.
Dan
Respondent.