A Texas appeals court rules that an estate's attorney is personally liable as the guarantor under a bond contract despite the surety's not having first sued the estate's administrator, who was primarily liable. Irvin v. Guar. Co. of N.A. (Tex. App., 5th Distr., No. 05-07-01230-CV, Aug. 5, 2008).
Carla Jenkins was appointed administrator of Armetia Pinkston's estate and the estate's attorney, Walter Irvin, applied for a probate bond of $250,000. Ms. Jenkins signed the application as the principal applicant and Mr. Irvin signed an indemnity clause as the guarantor of the bond. The contract with the bond company provided that it applied to all "substituted or changed" bonds and that if the surety company was required to bring suit to enforce the agreement, it could bring an action against either Ms. Jenkins or Mr. Irvin. During the administration of the estate, it became necessary to increase the bond amount to $875,000. Mr. Irvin received a new bond that named a different surety company and Ms. Jenkins as the principal.
After Ms. Pinkston's will was admitted to probate, Ms. Jenkins was removed as administrator and a new executor was appointed. The executor successfully sued Ms. Jenkins for failing to account for estate funds and breach of fiduciary duties and Ms. Jenkins was ordered to repay $59,536.11. When Ms. Jenkins, failed to pay the judgment, the surety company paid it and then sued Mr. Irvin for failing to indemnify it in accordance with the indemnity agreement. The surety company asserted that the issuance of the second bond did not negate the indemnity agreement from the first bond application. The trial court agreed and granted the surety company summary judgment, and Mr. Irvin appealed. He argued that he was not liable under the second bond because the indemnity clause did not carry over to the new bond and the surety company should have first sued Ms. Jenkins as the principal.
The Court of Appeals of Texas, Fifth District, affirms the trial court. Because the agreement does not specify a surety or even a potential surety, the court concludes that the indemnity clause applies to all subsequent bonds intended to secure the estate against losses during probate. Moreover, by the express terms of the agreement, the surety company was authorized to bring suit against Mr. Irvin directly despite his not being the principal on the agreement.
Note: This case serves as a reminder to never act as a guarantor on your clients' bonds.
For the full text of this decision, go to: https://courtstuff.com/cgi-bin/as_web.exe?c05_08.ask+D+12686223.
Did you know that the ElderLawAnswers database now contains summaries of more than 1,400 fully searchable elder law decisions dating back to 1993? To search the database, click here.
Subscribe to the Knowledge Bank.
