An administrator fails to distribute estate funds as ordered by the probate court. The beneficiary obtains a judgment for statutory penalties against the administrator under Section 360.301 of the Texas Estates Code. The beneficiary then sues the administrator’s surety company to collect on the bond. The surety moves for summary judgment, arguing the statute does not authorize recovery against sureties.
This scenario raises a question about the scope of surety liability in Texas probate matters. When administrators post bonds to secure faithful performance of their duties, those bonds protect beneficiaries and creditors from the administrator’s misconduct. However, Texas probate statutes address surety liability inconsistently. Some provisions explicitly state that sureties may be held liable on their bonds. Others remain silent on the question.
Does silence in a statute mean the Legislature intended to exclude surety liability, or should courts imply such liability based on the bond’s general language and prior case law? The First District Court of Appeals’ decision in Brazda v. SureTec Insurance Co., No. 01-21-00482-CV (Tex. App.—Houston [1st Dist.] Aug. 16, 2022, no pet.) (mem. op.), addresses this question and demonstrates how courts apply statutory construction principles to determine the boundaries of surety liability in estate administration.
Facts & Procedural History
Brooks Brazda’s father died. The probate court designated Keith Morris as the dependent administrator of the estate. SureTec Insurance Company issued a surety bond conditioned on Morris faithfully performing all duties required of him as dependent administrator.
The probate court ordered Morris to make a partial distribution from the estate to Brazda and his brother. Almost six months later, Brazda sent a demand letter for the funds. Morris did not respond. Brazda then requested the probate court to compel Morris to either distribute the funds or show good cause for failing to do so.
In connection with the show-cause application, Brazda sought a statutory penalty under Section 360.301 of the Texas Estates Code. He alleged that Morris negligently failed to timely distribute funds as ordered. The court scheduled a show-cause hearing. Morris did not appear at the hearing. One day later, Morris filed a response arguing that the delay occurred because Brazda and his brother did not timely sign necessary documents. Morris’s response was not verified.
A week later, the probate court found that Morris was personally liable to Brazda for damages as directed by Section 360.301(d). Morris moved for reconsideration. At a hearing, the court stated it would alter its sanction order but failed to do so before losing plenary power. Meanwhile, Morris released the funds Brazda and his brother were due.
With a final order holding Morris liable for statutory penalties, Brazda sued SureTec to recover on Morris’s bond and for attorney’s fees. SureTec moved for traditional summary judgment. The trial court granted a take-nothing judgment against Brazda without specifying the basis for its ruling. Brazda appealed.
Understanding Judgment Bonds Versus General Undertaking Bonds
SureTec argued that the judgment against Morris did not bind it because Brazda failed to give SureTec notice of the show-cause hearing. The parties agreed that whether the judgment against Morris was conclusive against SureTec depended on the type of bond SureTec maintained with Morris.
A judgment bond is one in which the surety agrees to be liable for a judgment based on a specific statutory violation covered by the bond. The bond does not have to include the word “judgment” to be a judgment bond. For example, a surety bond that provides the surety would be bound to pay if someone “establishes liability” is a judgment bond.
When a surety enters into a judgment bond, no notice of the hearing or trial to determine the principal’s liability is required for the judgment against the principal to be conclusive as to the surety’s liability. The surety is bound regardless of notice or default, absent proof of collusion or fraud. Any notice would be redundant because the surety agreed to be liable for specifically enumerated acts of the principal. A surety who furnishes this type of bond can and should adjust premiums based on the principal’s potential liability for those specific acts.
The only other type of bond is a general undertaking bond. A surety’s general undertaking bond does not contract to bind the surety to a particular judgment. It promises to be generally liable for the undertakings of the principal. A judgment against a principal who is party to a general undertaking bond does not bind the surety without notice. Instead, it creates prima facie liability against the surety who was not made a party or given an opportunity to defend the underlying suit. The surety will be permitted to assert any valid defense which the principal could have asserted.
SureTec’s bond with Morris did not mention any future judgment or the establishment of liability. It merely conditioned the bond on Morris faithfully performing all duties as administrator. The bond stated it was conditioned on Morris “well and truly, faithfully perform[ing] all the duties required of him” as administrator.
Generally, a surety’s liability is determined by the language of the bond. However, where a statute mandates a bond, the statute is made part of the bond contract and is controlling. The statute here, Section 360.301, omits any reference to a surety being liable for a statutory penalty imposed on an administrator for failing to perform required duties.
The court concluded that SureTec’s bond with Morris was a general undertaking bond rather than a judgment bond. The bond did not mention the establishment of liability or judgments. Nor did the statute that makes an administrator liable for failing to deliver estate property mention surety liability on a bond. Because this was a general undertaking bond, due process required that SureTec not be bound by the judgment against the principal without notice.
The Limited Effect of a General Undertaking Bond Without Notice
In a suit to collect on the bond, SureTec could present any defenses available at the time of judgment against Morris. However, having the ability to assert a defense to liability does not entitle the surety to traditional summary judgment on the singular argument that the surety did not receive notice. An actual defense is required. That defense must be established to warrant traditional summary judgment in the surety’s favor.
SureTec argued that the lack of due process defeated Brazda’s claim as a matter of law. However, lack of notice does not defeat the claim. It only alters the evidentiary weight given to the judgment against Morris. Because SureTec did not receive due process, the judgment against Morris was reduced from conclusive evidence of SureTec’s liability to prima facie evidence. It remained evidence. SureTec was not entitled to traditional summary judgment on this argument without also supplying a defense to liability. SureTec still had to establish that it was entitled to judgment as a matter of law.
Whether Section 360.301 Authorizes Recovery Against a Surety
SureTec contended that the statutory provision permitting the probate court to impose a penalty on an administrator for neglect in delivering property does not mention liability of a surety. Other statutory provisions explicitly state that a surety also may be held liable on its bond.
For example, for nonpayment of claims from estate funds, Section 355.113 permits the probate court to impose a penalty on an administrator and specifically permits the court to render judgment against the surety in favor of the claimholder for that penalty. Likewise, a probate court may hold an administrator liable for neglecting to promptly deliver a deed under Section 356.559(a). The statute explicitly provides that the surety may be held liable on its bond for the administrator’s failure.
Both the administrator and its surety may be liable for damages caused by the administrator’s failure to give notice for presentment of claims under Section 308.056. That provision explicitly provides for surety liability on its bond.
The provision at issue, Section 360.301, only speaks to administrator liability rather than surety liability. It penalizes an administrator who neglects to deliver a portion of an estate when ordered to do so and the person entitled to it has demanded it. A corollary provision allows a similar penalty at the end of administration if the administrator fails to deliver property “on the final settlement of an estate” under Section 362.052. Neither of these two provisions includes language suggesting that a surety may be held liable on the administrator’s bond for the administrator’s neglect.
SureTec argued that ordinary principles of statutory construction require that a surety not be liable for a penalty under Section 360.301, which omits surety liability, given that other statutory provisions expressly provide for surety liability for an administrator’s neglect. According to SureTec, the inclusion of terms to hold the surety liable in some sections but not in others reflects that the Legislature did not intend surety liability where it was not expressly included.
The Role of Prior Case Law
Brazda pointed to an older Texas Supreme Court case that discussed an earlier but substantially similar version of this same statute. He argued that a surety would be liable on an administrator’s bond for a statutory penalty imposed for failure to deliver a portion of an estate as ordered under that authority. In Stewart v. Morrison, 17 S.W. 15 (Tex. 1891), two heirs successfully sued to collect a penalty when an administrator neglected to deliver estate property they were entitled to. The surety appealed, arguing that the suit was premature.
In deciding that it was not premature, the Court stated in dicta that the “duty of the administrator is plain. He must pay the heirs as directed by the judgment, and, if he refuses to do so on demand, he violates his trust, and becomes liable on his bond.” The opinion reiterated that an administrator’s failure to deliver a portion of the estate ordered to be delivered is remedied through a “suit upon his bond.”
However, the Stewart Court cited two statutory provisions. It cited both the statute allowing a statutory penalty for failing to deliver estate property and the statute allowing a penalty for failure to pay a creditor. The first statute was silent on the issue of surety liability, while the second one expressly provided for it. Thus, one of the statutory provisions the Court referenced explicitly allowed surety liability.
The court in Brazda found that because Stewart linked surety liability to a statutory provision that expressly authorized it—which Section 360.301 does not—and because the statements quoted above were dicta unnecessary to the Court’s holding, the court was not bound by these statements.
Two other opinions also discussed a surety being liable on its bond when a principal failed to distribute as ordered. Both relied on Stewart. However, one failed to specify which provision was the source of the suit, and the other was not binding authority. The court concluded these opinions did not dictate the result and proceeded with traditional statutory construction analysis.
The Application of Statutory Construction Principles
Courts may not add terms to statutory language. Every word of a statute is presumed to have been used for a purpose. Every word excluded from a statute is presumed to have been excluded for a purpose. The court found the Legislature’s specific provision for surety liability in some contexts but not in Section 360.301 conveyed the Legislature’s intent not to impose liability on a surety for a Section 360.301 penalty.
Brazda argued that the Legislature had no need to invoke surety liability in Section 360.301 because administrators owe duties to heirs but not to creditors. According to Brazda, this distinction requires reference to surety liability in provisions dealing with failure to deliver to a creditor to whom the administrator otherwise would have no duty. However, it leaves it unnecessary in Section 360.301 to refer to surety liability because the administrator always owes a duty to heirs to whom a distribution is ordered.
The court rejected this argument. Statutory penalties are due when an administrator fails to do as ordered by the court. It is the administrator’s failure of duty to the probate court that triggers the penalty rather than the administrator’s relationship to the claimant. The failure might be in not delivering a portion of an estate to an heir after the court ordered the administrator to do so under Section 360.301. Or it could be in not making a payment to a creditor after the court ordered payment under Section 355.113. Either way, it is the administrator’s failure to comply with the court order that invokes the statutory penalties.
The type of claimant being denied receipt of estate assets and the existence of a duty to that class of claimant does not support adding new language to a statute that the Legislature chose to omit. The court failed to see how Brazda’s argument that an administrator has a duty to heirs but not to creditors explained why the Legislature would have made the surety liable for statutory penalties in both contexts but only expressly stated so in one.
The Anomaly of Section 351.003
The court noted that Section 351.003 allows certain costs and attorney’s fees to be assessed against an administrator and his surety when an administrator neglects to perform a required duty. Section 351.003 applies to a Section 360.301 penalty claim. These costs are assessed against the administrator and the surety because of the inequities inherent in penalizing the estate for the administrator’s negligence. The purpose of the section is to ensure that the estate will not be charged with fees or costs incurred by reason of fault of the personal representative.
The court conceded it may be unexpected that a surety would be liable for the costs and attorney’s fees incurred to obtain compliance by the administrator yet not be liable for the underlying sanction imposed for the same conduct. However, that appeared to be the intent of the Legislature. Whether unexpected, it was not an absurd result to cause the court to ignore the plain language of the statute. The court found no explanation in the statute or case law for why this would be but concluded that this provision did not alter its analysis. The court would not write “and his surety” into Section 360.301 where the Legislature chose to omit it.
The Takeaway
The Brazda decision establishes that sureties are not liable for statutory penalties imposed on administrators under Section 360.301 of the Texas Estates Code when the statute does not expressly provide for surety liability. The Legislature’s inclusion of express surety liability provisions in some sections of the Estates Code but not in others demonstrates intent to limit surety liability to those situations where it is specifically stated. This case suggests that the distinction between administrators’ duties to heirs versus creditors does not justify reading surety liability into a statute that omits it, particularly when statutory penalties are triggered by failure to comply with court orders rather than by the nature of the relationship with the claimant.
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