Opinion
No. C1-97-890, C1-97-1487.
Filed January 20, 1998.
Appeal from the District Court, Stearns County, File No. C2-96-3596.
Mark G. McKeon, Willenbring, Dahl, Wocken Zimmerman, (for respondents).
Paul R. Spyhalski, Warren F. Plunkett Associates, (for appellant).
Considered and decided by Crippen, Presiding Judge, Schumacher, Judge, and Amundson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1996)
UNPUBLISHED OPINION
Appellant Minnesota Trust Company of Austin (Minnesota Trust) challenges the district court's grant of summary judgment in favor of respondents Steven and Joan Kurtz, arguing the district court erred in concluding that a surety bond issued to the Kurtzes was enforceable and the Kurtzes' action to collect on the bond was not stayed by the principal's filing of Chapter 11 bankruptcy. We affirm.
FACTS
The Kurtzes sold milk cows and young stock to Mike and Jeff Kurtz in 1994. Mike and Jeff Kurtz gave the Kurtzes a promissory note and a security interest in the cattle. The Kurtzes filed an action in replevin when they learned that Mike Kurtz was experiencing financial difficulties and had sold some of the cattle. The district court denied the action, but ordered Mike Kurtz to post a bond in the amount of $15,000.
Mike Kurtz's attorney, Michael Michalski, was authorized by Minnesota Trust to issue surety bonds. Minnesota Trust provided Michalski a pad of pre-executed bond forms. Michalski issued a "Bond in Counter Replevin" for $15,000 on behalf of Mike Kurtz and filed the bond with the district court. Michalski signed the bond for Mike Kurtz as principal and sent Minnesota Trust his own check for the premium. Mike Kurtz reimbursed Michalski for the premium, but the check was returned to Michalski for insufficient funds.
Michalski subsequently withdrew as counsel for Mike Kurtz and advised Minnesota Trust of his withdrawal by letter. Michalski included with the letter a copy of the bond. Minnesota Trust immediately notified the Kurtzes that the bond was void.
Mike Kurtz defaulted on his payments to the Kurtzes, and, ultimately, petitioned for bankruptcy. The Kurtzes filed an action against Minnesota Trust seeking to enforce the bond. The Kurtzes and Minnesota Trust filed motions for summary judgment. The district court granted the Kurtzes' motion for summary judgment and denied Minnesota Trust's motion. Minnesota Trust appeals.
DECISION
1. Minnesota Trust argues the district court erred in concluding that Mike Kurtz's, the principal's, petition for Chapter 11 bankruptcy did not automatically stay the Kurtzes' action. The district court held that the principal's bankruptcy petition did not stay proceedings against the surety, Minnesota Trust. We agree.
The filing of a bankruptcy petition automatically stays "any act to obtain possession of the estate or of property from the estate or to exercise control over property of the estate" of the petitioner. 11 U.S.C. § 362(1)(3) (1988). However, [i]t is universally acknowledged that an automatic stay of proceedings accorded by § 362 may not be invoked by entities such as sureties, guarantors, co-obligors, or others with a similar legal or factual nexus to the Chapter 11 debtor.
Lynch v. Johns-Manville Sales Corp. , 710 F.2d 1194, 1196 (6th Cir. 1983) (citations omitted).
Minnesota Trust is the surety. As the surety, Minnesota Trust has no standing to invoke the stay of proceedings afforded the principal, Mike Kurtz.
2. Minnesota Trust argues the district court erred in granting the Kurtzes' motion for summary judgment, claiming the bond was unenforceable because (1) the principal failed to sign the bond and (2) the bond was not supported by consideration. We agree with the district court that the bond was enforceable as a matter of law.
In reviewing summary judgment, we consider (1) whether there are genuine issues of material fact and (2) whether the district court erred in applying the law. State by Cooper v. French , 460 N.W.2d 2, 4 (Minn. 1990). The court views the evidence "in the light most favorable to the party against whom judgment was granted." Fabio v. Bellomo , 504 N.W.2d 758, 761 (Minn. 1993).
Minnesota Trust claims the bond was unenforceable because the principal Mike Kurtz did not sign the bond. The district court correctly held there are no genuine issues of material fact regarding this issue. The parties agree that Mike Kurtz did not sign the bond. The parties also agree that his attorney Michalski signed the bond, noting on the face of the instrument that his signature was "for Mike Kurtz." Further, the parties do not dispute that the bond was notarized and filed with the court.
The district court properly concluded based on these facts that the bond was enforceable even though Mike Kurtz did not sign it. In signing the bond on behalf of Mike Kurtz, Michalski acted as his agent. See Minn. Stat. § 481.08 (attorney may bind a client under certain circumstances); see also Schumann v. Northtown Ins. Agency , Inc. , 452 N.W.2d 482, 484 (Minn.App. 1990) ("The rules and principles of the law of principal and agent control the relation of attorney and client * * *.") (quoting Gibson v. Nelson , 111 Minn. 183, 188, 126 N.W.2d 731, 733-34 (1910)). After Michalski executed the bond, Mike Kurtz provided Michalski a check for the premium. In so doing, Mike Kurtz ratified Michalski's action on his behalf. See Schumann , 452 N.W.2d at 484 (holding an attorney's unauthorized settlement of a claim on behalf of client will be binding if client ratifies it); see also Gran v. City of St. Paul , 274 Minn. 220, 223, 143 N.W.2d 246, 249 (1966) (holding an attorney's unauthorized settlement will be binding if client ratifies it). Michalski's signature on the bond and Mike Kurtz's subsequent ratification of Michalski's execution of the bond bound Mike Kurtz as the principal.
We also note the supreme court has held that when an obligee, not the principal, seeks enforcement of a bond, a surety may not raise technical noncompliance with [execution requirements] as a defense where the obligee had no duty to ensure compliance, where performance of the requirement was for the protection of the obligee, the requirement was not of the essence of the agreement between the principal and surety, and where technical noncompliance did not affect the liability of the surety.
In re Hampton , 374 N.W.2d 264, 267 (Minn. 1985). Under Hampton , the Kurtzes were entitled to enforce the bond.
Minnesota Trust also argues the bond was unenforceable because it was not supported by consideration. The district court found that Michalski paid Minnesota Trust the premium for the bond and Mike Kurtz attempted to reimburse Michalski with a check that was returned for insufficient funds. Minnesota Trust does not dispute this finding. The bond was supported by consideration, that is, the premium payment. Whether Michalski was ultimately reimbursed for his payment of the premium has no legal significance in this case.