Kent Probate Judge Ex Rel. Heaney v. American Employers Ins. , 283 Mich. 328 ( 1938 )

After the death of John C. Dutmers in 1932 the probate court for the county of Kent appointed deceased's son, Cornelius J. Dutmers, and Robert C.C. Heaney, an attorney at law, as coadministrators of his estate. Defendant American Employers Insurance Company became surety on the bond of the administrators. The bond recites that the principals "shall administer according to law all the goods, chattels, rights, credits and estate of said deceased," and "shall perform all orders and decree of said court, by the said administrator, to be performed in the premises."

The inventory, filed on March 14, 1933, stated that the deceased's estate consisted of three parcels of real estate, cash, rent accounts receivable, some household goods, and the stock of goods, fixtures and accounts receivable of three drug stores. Two of the parcels of real estate were being purchased on land contracts and the stock and fixtures of two of the drug stores were incumbered by a chattel mortgage in one instance and a title-retaining contract in another.

In December, 1933, certain creditors filed a petition for the removal of coadministrator Dutmers, charging him with the misappropriation of funds of the estate. This petition was heard and Dutmers subsequently filed his resignation. He did not, however, render his final account and, in May, 1934, Heaney filed an individual account which was allowed "subject to any change in the liability of Cornelius J. Dutmers which he may establish upon the hearing on his final account." Dutmers later filed his final account covering the period from February 17, 1933, to June 8, 1934, and the probate court found that he was indebted to the estate in the net amount of $1,622.66. It appeared that Dutmers had collected some rentals and had used other funds of the estate amounting to $2,172.66, and the probate court allowed him a credit of $350 for his fee as coadministrator and $200 as compensation for his services as a druggist in the operation of the business previously referred to. The amount due from Dutmers to the estate was not paid and the probate court directed Heaney, the surviving administrator, to institute a suit in the circuit court against Dutmers and his surety. Upon the trial of that cause it developed that, although the property located in the various drug stores and certain real estate being purchased on land contract were inventoried and accounted for as a part of the deceased's estate, they were, in fact, partnership assets, owned by the deceased and his son, Cornelius, the coadministrator. Inquiry being directed to this situation, Heaney stated, on cross-examination:

"The store on Giddings originally belonged to Henry Dutmers, one of John's sons, where John furnished the money to get Henry started, and after Henry's death the partnership of John and Cornelius Dutmers sort of took that in without any formal determination of ownership, and so at the time I first came into the estate, it was included in the inventory as being part of the assets of the deceased. It was so involved financially that in dividing the assets of the estate we show it as all belonging to the creditors. We put it in the estate of the deceased for the purpose of liquidation to turn the proceeds over to the creditors.

"My office drew up the inventory, which was sworn to by both Mr. Dutmers and myself."

Dutmers testified:

"Mr. Heaney told me I had no right in the store because it belonged to creditors. * * *

"When father died the partnership was in debt to a considerable extent. I cannot say definitely but it was around $15,000 or $16,000. At the time of his death I was paying those debts at the rate of about $200 per month from partnership funds. Up to the time that Mr. Heaney took charge, I was putting the rents from the building into the partnership account, which was up until Mr. Brown did the book-keeping. After that I turned them over to Mr. Brown who turned them over to Mr. Heaney. That continued up to December 2, 1933, after which I didn't turn them over to anyone."

During the administration of the estate, Dutmers filed a claim against the estate for moneys he said were advanced by him. In explanation thereof, he said in the circuit court:

"The building at 35 South Division was used as partnership property from April 29, 1922, until the business was discontinued June 9, 1934. During that entire time the funds from the building were put into the partnership, and the expenses were paid by the partnership. I included some of the things in the inventory on advice of Mr. Heaney, who was then acting as my legal advisor and as attorney for Annis and Heaney for the estate. I paid no funds directly to the Michigan Trust Company on the building. I put money into the partnership account as follows:

"March 10, 1928, $692.53, part of a deposit of $787.18 made on that date;

"December 29, 1928, $1,000, I borrowed from National Life Insurance Co.;

"August 29, 1930, $500, I borrowed from National Life Insurance Co.

"Those were the items referred to in my claim filed against the estate which Mr. Heaney brought out a little while ago. In filing my claim for $2,000 for the stock borrowed from my sister I acted under legal advice from Mr. Renihan. I did not know at that time whether the partnership assets belonged to the surviving partner or to the administrator of the estate of the deceased partner."

The record does not contain the answer filed by appellee insurance company to plaintiff's declaration and we can only assume the nature of its defense from that portion of the testimony shown in the record, the statements of fact contained in the court's opinion, and the arguments in the various briefs.

The circuit judge, sitting without a jury, filed a written opinion in September of 1935, in which he said:

"That the order of the probate court is binding upon the defendant Dutmers, but not upon his surety, and that plaintiff is not, therefore, entitled to recover the full amount of his claim in the present state of the proofs. In view of the fact that there is an apparent liability of both principal and surety and this conclusion decides merely a technical question as to the proof required, the ends of justice will be served by allowing costs to the defendant surety and by ordering the case reopened to permit plaintiff to offer further Proof to establish liability."

An order was entered in conformity to this finding. Further proofs were then taken and a second opinion was filed on December 21, 1935, in which the trial judge held that certain changes should be made in the computation of the liability of Cornelius J. Dutmers, which resulted in the entry of a judgment against Dutmers individually in the sum of $1,759. The court held, however, that, because property had been included in the inventory of the estate that should have been treated as belonging to the partnership and administered by the surviving partner, the liability of the surety was in a lesser amount because, said the court:

"The bond signed by the surety limits its obligation to the 'goods, chattels, rights, credits and estate of said deceased,' and cannot be stretched to include property that did not belong to deceased but was owned by a partnership of which deceased was a member."

The surety's liability was fixed by the circuit court as $727.06, which, after an adjustment of the fees allowed to Dutmers by the probate court, left a net balance of $404.10, in which sum judgment was entered against it and paid.

Plaintiff Heaney is the only party appealing from this judgment. He claims that the order of the probate court, allowing the final account of Cornelius J. Dutmers, was resjudicata of the surety's liability on Dutmer's bond; that the probate court files and records are conclusive proof of what the assets of the estate are and that the findings of that court cannot be attacked in a collateral proceeding by the surety.

Questions regarding the sufficiency of notice to the surety and publication of the final account are also raised but need not be decided because of our view of the controlling question in the case.

The liability of the surety is not dependent upon any application of the doctrine of res judicata. Defendant American Employers Insurance Company was not heard or represented in, nor was it a party to the final accounting proceedings wherein the liability of its principal was determined. The only question involved is: What is the contractual undertaking of the surety? See Grady v. Hughes, 80 Mich. 184; Robbins, for useof Wood, v. Burridge, 128 Mich. 25; People, foruse of Clinton, v. Laning, 73 Mich. 284; Holden v. Lathrop,65 Mich. 652; Sauer v. Detroit Fidelity Surety Co.,237 Mich. 697 (51 A.L.R. 1485).

It is true that defendant surety company obligated itself to secure performance by its principal, Dutmers, of "all orders and decrees of said (probate) court * * * in the premises." However, it is important to emphasize that this provision is limited to "all orders," et cetera,"in the premises;" and the broad language of this obligation must be further construed in the light of the other condition of the bond quoted, supra, that Dutmers "shall administeraccording to law all the goods, chattels, rights, credits and estate of said deceased," et cetera. It was permissible for the surety to introduce evidence to show that the order entered by the probate court did not come within the obligations of the bond; that, in part, the order was based upon Dutmers' mishandling of assets which were not, in fact, assets "of said deceased," but were, instead, assets of a partnership of which the deceased was a member, and, therefore, the order was not entirely confined to "the premises." See Russell v.Wheeler, 129 Mich. 41; Webber v. Detroit Fidelity Surety Co.,263 Mich. 144. Under the statute (2 Comp. Laws 1929, § 9869 etseq.), partnership assets are to be administered by the surviving partner and not by the probate court which exercises jurisdiction over the administration of the deceased partner's estate. Merritt v. Dickey, 38 Mich. 41, andHeap v. Heap, 258 Mich. 250.

Since, therefore, the liability adjudged by the order entered by the probate court did not come within the terms of the surety's contract, it was necessary for the circuit court to take testimony in order to determine the surety's liability on the general condition of its bond that its principal "shall administer according to law," et cetera. Perkins v. Cheney,114 Mich. 567 (68 Am. St. Rep. 495). The findings of the circuit judge on this issue are in accord with our views and, in our opinion, are free from any reversible error.

It may be that the order entered in the probate court was valid in a jurisdictional sense, even though, unknown to the probate court, some assets included in the account and inventory were, in fact, not assets of the estate.Peninsular Savings Bank v. Ward, 118 Mich. 87, 94; but the fact that the order may be valid is not material in this instance in determining the surety's contractual liability.

Holden v. Lathrop, supra, is cited as authority to the contrary. In that case the surety questioned the correctness of a probate order allowing an executor's account in which the latter was charged with a defalcation. This court held in that case that: "The payment of the probate judgment is within the exact conditions of his bond." Here, the surety does not question the correctness of the probate order of which it did not have notice, but contends that the indebtedness of its principal includes matters not within the conditions of its bond. The defense is not a collateral attack upon the probate order but rather raises an issue as to defendant surety's responsibility for its performance. Similar distinctions may be drawn between the instant case and Gill v. Backus, 108 Mich. 417, and Dudley v. Conely, 125 Mich. 300.

The judgment entered in the circuit court is affirmed, with costs to appellee American Employers Insurance Company.

BUTZEL, SHARPE, POTTER, CHANDLER, NORTH, and McALLISTER, JJ., concurred with BUSHNELL, J.

WIEST, C.J., concurred in the result.