Harold B. Stone, Dependent of the Estate of Charles A. Ogle v. First Tennessee Bank National Association

Stone v. First Tenn. IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS, AT AUSTIN NO. 3-91-419-CV HAROLD B. STONE, DEPENDENT EXECUTOR OF THE ESTATE OF CHARLES A. OGLE, DECEASED, APPELLANT vs. FIRST TENNESSEE BANK NATIONAL ASSOCIATION, APPELLEE FROM PROBATE COURT NO. 1 OF TRAVIS COUNTY, NO. 50,136, HONORABLE GUY HERMAN, JUDGE Appellant Harold B. Stone, dependent executor of the estate of Charles A. Ogle, (the "Executor") appeals the order of the Travis County probate court certifying a claim under a Tennessee judgment that the deceased was liable for principal, interest, and attorney's fees, based on his guaranty of two notes made by First Tennessee Bank National Association (the "Bank"). The Executor contends that the Bank failed to proceed properly according to the Texas Probate Code provisions governing presentation and certification of claims. We disagree and will affirm the order of the probate court. BACKGROUND To understand this case we must examine the transactions giving rise to the claim. On July 13, 1983, and again on October 26, 1983, Athletic Industries International (AII) executed promissory notes to the Bank. Both notes required interest to be determined based on a variable rate. Charles Ogle guaranteed these notes. AII defaulted on both notes when they matured in August 1985. Charles Ogle died in December 1985. The Bank is seeking repayment from Ogle's estate, under the guaranty agreement, of the principal and interest on the notes, as well as attorney's fees incurred. The Bank first filed the AII claim on June 23, 1986, asking for principal, interest, and attorney's fees. The Executor rejected that claim on July 22, 1986. On August 20, 1986, the Bank timely sued the Executor on the AII notes in chancery court in Tennessee. Due to a change in the variable interest rate on the notes, the petition filed in Tennessee alleged a different rate of interest than the June 23, 1986, claim and also reflected an increase in the amount of attorney's fees requested. The Bank also presented the AII claim to the Executor for the second time, with amendments to reflect those same revisions in the interest rate and the attorney's fees. In September, the Bank filed the claim, as amended, in the probate court. The Executor then filed a memorandum of allowance and stipulation, allowing the principal as stated in the claim, plus accrued interest and reasonable attorney's fees, but declining to accept or reject the attorney's fees requested in the claim for lack of supporting information. The Executor also filed an answer in the Tennessee lawsuit on September 26, 1986. On November 21, 1986, the probate court issued an order (the "November order") approving the Bank's claim to the extent the Executor allowed it. The November order did not classify the claim. The significance and effect of the November order is central to the dispute in this case. In the Tennessee court, the parties stipulated to the amount due under the notes and tried the lawsuit on the issue of the amount of the Bank's reasonable attorney's fees. The final judgment rendered against the Executor awarded the Bank $152,128.01 in principal, $30,950.25 as accrued interest, and attorney's fees of $15,000. The Tennessee Court of Appeals affirmed the judgment. An amended judgment was rendered to reflect the $4,269.04 of additional attorney's fees allowed on appeal. This judgment will be referred to hereinafter as the "Tennessee judgment." The Bank filed a certified copy of the Tennessee judgment in the Travis County Probate Court on February 15, 1991, along with an application for classification of the claim. The court, over the objection of the Executor and after an evidentiary hearing, rendered an order that directed the clerk to enter the Tennessee judgment on the claim docket, classified the claim, and declared the November order "void." The Executor appeals from this February 15, 1991, order. The Executor presents seven points of error on appeal. Point of error one asserts that the probate court lacked the power to vacate the November order. Point of error two contends that the application to classify the Tennessee judgment as a claim was an impermissible collateral attack on the November order and should have been refused. Point of error three asserts that the November order was res judicata to the Tennessee judgment and the probate court should have on that basis refused to classify the judgment. Points four, five, six, and seven all assert claims of improper presentment or failure of presentment of the claim sued upon in Tennessee. All of these points complain of the probate court's conclusions of law and will be reviewed as such. This Court finds that all grounds of appeal lack merit, and we affirm the probate court's order of February 15, 1991. DISCUSSION AND HOLDING The November Order The Executor, in his first point of error, claims that the probate court lacked the power to vacate the November order. The Executor claims that the November order was a final order and could properly be challenged only by a bill of review and not by application for the classification of the Tennessee judgment. We disagree. We find that the November order was not a final order, particularly as to the amount of interest and reasonable attorney's fees. Although the probate court can issue appealable orders during the course of probate, which orders do not necessarily dispose of the entire probate proceeding, those orders must finally dispose of the issue or contested question for which the particular proceeding was brought. Kelley v. Barnhill, 188 S.W.2d 385, 386 (Tex. 1945). The orders must also meet the statutory requirements for that type of order. See Tex. Prob. Code Ann. §§ 5, 312 (West 1980). The probate court is only able to issue orders on allowed claims. See Tex. Prob. Code Ann. §§ 312, 313 (West 1980); Small v. Small, 434 S.W.2d 940, 942, (Tex. Civ. App.Waco 1968, writ ref'd n.r.e). Under the Probate Code, the probate court when acting on an allowed claim must annex to the claim a written memorandum stating the action taken on the claim and classifying the claim. (1) Tex. Prob. Code Ann. § 312(d). The November order does not meet these requirements. Although the order purports to approve the claim, it does so only to the extent allowed by the Executor, and it fails to classify the claim. The Executor did not completely allow the amended claim; he failed to specify the amount of the allowed interest and rejected the requested attorney's fees, leaving open the proper amount of attorney's fees that would be approved. Therefore, the November order could not approve the claim as to those issues not specified in the Executor's memorandum. Because the November order was not final as to interest and attorney's fees, the probate court had the power to supplement it with an order based on the application to classify the Tennessee judgment as a claim. This Court considers the November order interlocutory and, therefore, subject to change by the probate court. (2) We overrule point of error one. Application to Classify the Tennessee Judgment The Executor contends in points of error two and three that the application to classify the Tennessee judgment as a claim was an impermissible collateral attack on the November order and that res judicata bars the Tennessee judgment. We believe that the probate court acted properly in granting the application to classify the Tennessee judgment. The Executor argues that the "amended claim," filed in September 1986, was valid and that by presenting the Tennessee judgment which concerns the first claim, the Bank collaterally attacked the November order, which approved the amended claim. A collateral attack is an attempt to avoid the binding effect of a judgment in a proceeding not instituted for such purpose. See Ackers v. Simpson, 445 S.W.2d 957, 959 (Tex. 1969); Texaco, Inc. v. LeFevre, 610 S.W.2d 173, 176 (Tex. Civ. App.Houston [1st Dist.] 1980, no writ). If an order is not final, any attack against it in a separate proceeding is not a collateral attack since the order is not a judgment with binding effect. Gathings v. Robertson, 276 S.W. 218, 219 (Tex. Comm. App. 1925, holding approved). As we have already held, the November order was not final, particularly as to those parts of the claim that the Executor refused or failed to specify, i.e., attorney's fees and the amount of the accrued interest. (3) Further, as we have also already determined, the court's failure to classify the amended claim allowed by the Executor indicates that the order was not final. Because the November order is not final and binding, classification of the Tennessee judgment is not a collateral attack. Even if the November order were final, the application to classify the Tennessee judgment would not be a collateral attack. The Tennessee judgment is not contradictory in any respect to the November order approving the amended claim since that order merely approves the claim to the extent allowed by the Executor. The Tennessee judgment supplements the November order by specifying the amount of accrued interest and reasonable attorney's fees, which the November order left contingent. The amount of principal due on the notes, the part of the claim specifically allowed by the Executor, and thus approved in the November order, remained the same. The application did not request that the November order be set aside, nor was it necessary to set aside the November order to grant the application to classify the Tennessee judgment. Since the classification of the Tennessee judgment did not actually require setting aside the effective part of the November order, the application was not a collateral attack. See Texaco, Inc., 610 S.W.2d at 176. We overrule point of error two. Res Judicata Defense to Tennessee Judgment The Executor also contends that the probate court erred by granting the Bank's application to classify the Tennessee judgment because the November order was res judicata as to the Tennessee judgment. In effect the Executor is trying to collaterally attack the Tennessee judgment on the basis of the prior order. Even if the the November order were res judicata as to the Tennessee lawsuit, that judgment would be only erroneous, not void, and an erroneous judgment is not subject to collateral attack. Garza v. Garza, 666 S.W.2d 205, 208 (Tex. Civ. App.--San Antonio 1983, writ ref'd n.r.e.). Further, res judicata under Texas law is waived if not pled as an affirmative defense in the trial court during the suit sought to be barred. Tex. R. Civ. P. 94; see also Toler v. Harbour, 589 S.W.2d 529, 531 (Tex. Civ. App.Amarillo 1979, writ ref'd n.r.e). Thus, since the defense would be waived, it cannot serve as the basis for a collateral attack. Once a final judgment was presented to the Texas probate court, that court was required to treat the Tennessee judgment as an approved claim under the Probate Code. Chisholm v. Bewley Mills, 287 S.W.2d 943, 946 (Tex. 1956). The probate court's duty was to record and classify the claim. See Tex. Prob. Code Ann. § 313. The probate court therefore acted properly in granting the application to classify the claim. We overrule point of error three. Proper Presentment of the Claim In points of error four through seven the Executor contends that the Bank failed properly to present to him the claim sued upon in the Tennessee judgment and, therefore, that judgment should not be classified as a claim against the estate. This Court has held that when a petition fails to allege that the claim has either been presented to the administrator (or falls into a statutory exception to the requirement, not at issue here), the court has no jurisdiction over the claim. Johnson v. First Mortgage Loan Co., 135 S.W.2d 806, 808 (Tex. Civ. App.Austin 1939, no writ). However, although presentment is a jurisdictional requirement, that requirement is satisfied by allegations and statements of fact in the petition that the claim was presented and refused. See Podgoursky v. Frost, 394 S.W.2d 185, 189-90 (Tex. Civ. App.--San Antonio 1965, writ ref'd n.r.e.). In this case, the jurisdictional requirement has been met by the allegations in the petition in the Tennessee suit. Therefore, presentment cannot form the basis of a collateral attack. A challenge to the jurisdiction of a court issuing a binding judgment, regular on its face and its record, in a proceeding which is not a direct appeal from that judgment, is an impermissible collateral attack. See White v. White, 179 S.W.2d 503, 506 (Tex. 1944); Huffstutlar v. Koons, 789 S.W.2d 707, 710 (Tex. App.Dallas 1990, no writ). The Executor should have brought this defense before the Tennessee court during the pendency of that suit. The Executor contends that the presentment of the first claim does not satisfy the jurisdictional requirement since the lawsuit is for the amount reflected by the "amended claim" and not the "original claim." The Executor argues that Ramsay v. Rouse, 68 S.W.2d 317 (Tex. Civ. App.Texarkana 1934, writ ref'd), requires that the exact amount presented and refused by the executor or administrator be at issue in the lawsuit on that claim. This is an argument that should have been made in the Tennessee courts, as indeed, Ramsay was an appeal from the district court judgment determining the validity of a claim. (4) Since the petition in the Tennessee lawsuit states that the Bank presented the claim to the administrator who refused it, and that point was not argued on appeal in Tennessee, we hold that the jurisdictional issue has been waived. Even if the point were properly preserved, we find that the claim in the Tennessee lawsuit is the same as the first AII claim presented to the administrator and refused, despite the increase in the dollar value of the attorney's fees and accrued interest as well as the change in the rate of interest. We overrule points of error four through seven. CONCLUSION Because we conclude that the probate court correctly gave full faith and credit to the Tennessee judgment and properly granted the application to classify it, we affirm the final order of that court issued February 15, 1991. Mack Kidd, Justice [Before Justices Powers, Jones and Kidd] Affirmed Filed: September 16, 1992 [Do Not Publish] 1. Probate Code section 322 sets out guidelines for classifying claims. A claim's class determines its priority of payment. Tex. Prob. Code Ann. § 322 (West Supp. 1992). Paying claims out of order of their classification could subject the executor to liability if the estate's assets are insufficient to pay all approved claimants and a higher class claim is not paid because of payment of a lesser claim. It is the sole responsibility of the probate court in a dependent administration to determine a claim's classification. See M. K. Woodward & Ernest E. Smith III, Probate and Decedents' Estates, 18 Texas Practice § 940 (1971) (and cases cited therein). 2. If the probate court wants to consider the November Order "void" it may do so, but we are not bound by how the probate court styles its actions. See Andrews v. Key, 13 S.W. 640, 642 (Tex. 1890); Vela de Benavides v. Warren, 674 S.W.2d 353, 362 (Tex. App.San Antonio 1984, writ. ref'd n.r.e.). The probate court had the power to set the order aside since it was not final. 3. To the extent that the claim for attorney's fees was rejected by the executor's failure to allow, we note that a probate court has no jurisdiction over rejected claims. See Ulrich v. Estate of Anderson, 740 S.W.2d 481, 486 (Tex. App.--Houston [1st Dist.] 1987, no writ); Lopez v. Wallace, 453 S.W.2d 383, 385 (Tex. Civ. App.El Paso 1970, no writ). 4. Further, we find Ramsay distinguishable. In Ramsay, the trial court rendered judgment, based not on the contract claim presented and refused by the administrator, but on a historic employment relationship, separate from and not reflected in the claimed contract with the deceased, which relationship had not been presented to the administrator or even pleaded by the plaintiff. Ramsay, 68 S.W.2d at 319-20. In the case at bar the notes at issue in the lawsuit were the same as those presented to the Executor. We find that Ramsay does not operate to void the Tennessee judgment. The changes in the amount and rate of interest and the amount of attorney's fees between the original claim and the petition in the Tennessee suit result from the passage of time and pursuit of litigation caused by the Executor's own actions, not an alternate claim. We agree with the Dallas Court of Appeals, which also allowed changes of this type between the claim presented and the petition in the suit to prove that claim. See Thomas v. State Life Ins. Co., 123 S.W.2d 385, 387 (Tex. Civ. App.Dallas 1938, no writ).