The Prudential Insurance Co. of America v. Frazier

The PRUDENTIAL INSURANCE COMPANY of America
v. Melissa Conrad FRAZIER and Mellonie Conrad

94-1320                                            ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered February 5, 1996


1.   Jurisdiction -- chancellor had subject matter jurisdiction --
     action for accounting against an insurance company and former
     guardian. -- The chancellor had subject matter jurisdiction
     over an action against an insurance company and former
     guardian for accounting and judgment.   

2.   Guardian & ward -- appellant paid proceeds to putative
     guardian without court authority -- chancellor's ruling
     correct. -- Where the appellant paid the proceeds to the
     guardian without court authority, no bond was ever set and no
     letters of guardianship were ever issued, and the Probate code
     of 1949 did not authorize appellant to pay the guardian the
     proceeds on the strength of a court order conditionally
     appointing him guardian, with bond yet to be determined, there
     was no error in the chancellor's so ruling.

3.   Appeal & error -- appellant's argument raised for the first
     time on appeal -- court will not address such arguments. --  
     Where appellant's second argument for reversal was that after
     paying the proceeds to the guardian, it had no further
     obligation to appellees under the law of trusts, and the
     abstract did not reveal that appellant relied on the law of
     trusts in the proceedings below, the court refused to address
     the argument; the record on appeal is confined to that which
     is abstracted.  


     Appeal from Garland Chancery Court; Tom Smitherman,
Chancellor; affirmed.
     The Rose Law Firm, A Professional Association, by:  Phillip
Carroll, for appellant.
     Crawford Law Firm, by:  Michael Crawford, for appellees.

     Andree Layton Roaf, Justice.February 5, 1996.   *ADVREP9*









THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA,
                    APPELLANT,

V.

MELISSA CONRAD FRAZIER AND
MELLONIE CONRAD,
                    APPELLEES,






94-1320



APPEAL FROM THE GARLAND COUNTY
CHANCERY COURT,
NO. 94-209-CC,
HON. TOM SMITHERMAN,
CHANCELLOR,




AFFIRMED.


                   Andree Layton Roaf, Justice

     Appellant, the Prudential Insurance Company of America,
appeals from a judgment in an action for accounting, in which the
chancellor awarded $30,519.60 in insurance proceeds to appellees,
Melissa Conrad Frazier and Mellonie Conrad.  The court of appeals
certified this case to us as one requiring interpretation of the
Probate Code of 1949.  Jurisdiction is therefore properly in this
court pursuant to Ark. Sup. Ct. R. 1-2(d)(1) and (a)(3).  For
reversal, appellant argues that it properly paid the insurance
proceeds to appellees' guardian and that, under the law of trusts,
it had no further obligation to appellees as beneficiaries.  We
find no merit to these arguments and affirm.
     Appellees were aged eight and nine when their mother died on
August 27, 1983.  On October 25, 1983, an order was entered by the
Garland County Probate Court appointing their uncle, Jerry Reid, as
guardian of their persons and estates.  The order stated that "bond
shall be determined."  Bond was not determined and letters of
guardianship were apparently never issued to Mr. Reid.  On November
10, 1983, appellant paid the appellees' $30,519.60 share of their
mother's life insurance proceeds to Reid as guardian of their
estates.  Reid and his wife adopted appellees in July 1984.  After
reaching the age of majority, appellees initiated this suit in 1994
by filing a petition for an accounting and for judgment, alleging
that both Reid and appellant had failed and refused to account for
the life insurance proceeds.  After a bench trial, the chancellor
found that Reid spent the proceeds for improper purposes and
without court approval, that appellant and Reid were jointly and
severally liable to appellees, and that Reid was liable to
appellant for any payment of the judgment appellant made.
     Unlike the dissenters, we have no difficulty in concluding
that the chancellor had subject matter jurisdiction over an action
against an insurance company and former guardian for accounting and
judgment.  See Nelson v. Wood, 199 Ark. 1019, 137 S.W.2d 929 (1940)
(chancellor imposed trust on property titled in guardian's name but
purchased with minor's funds); Hancock v. Hancock, 197 Ark. 853,
125 S.W.2d 104 (1939) (chancery court had jurisdiction to hear
custody dispute between natural mother and guardian previously
appointed in probate court); Grogan v. Weatherby, 196 Ark. 705, 119 S.W.2d 557 (1938) (chancellor determined that guardian's failure to
give bond rendered proceeding void and set aside partition sale of
minor's land); A&P's Hole-In-One, Inc. v. Moskop, 38 Ark. App. 234,
832 S.W.2d 860 (1992) (accounting is an equitable remedy; provides
a means to compel one entrusted with property of another to render
account of his actions, and for recovery of any balance due).    
     Appellant first argues that it properly paid the insurance
proceeds to Reid as appellees' guardian and was under no duty to
ensure that the guardian would carry out his obligations.  This
argument challenges the chancellor's finding that appellant "paid
insurance proceeds to Reid without court authority and without
[e]nsuring the beneficiaries would be properly protected." 
Appellant presented no evidence at the bench trial.  Appellant did,
however, move for a directed verdict at the close of all the
evidence arguing that it had properly paid Reid the proceeds on
November 10, 1983, because Reid had been appointed guardian by
court order entered October 25, 1983.
     Appellees admitted into evidence, without objection, a
certified copy of the entire file of the guardianship proceedings. 
The October 25, 1983 order appointing Reid guardian stated that
"bond shall be determined."  There is nothing in the guardianship
proceedings indicating that bond was ever determined or issued, or
that letters of guardianship were ever issued.  Appellees
introduced a notice from the Probate file dated October 10, 1984,
directing Reid to file an inventory of appellees' assets, and
Reid's response dated November 9, 1984, which listed each
appellee's sole asset as $437.00 monthly social Security benefits. 
The chancellor found that Reid did not disclose the insurance
proceeds he received as guardian from appellant almost one year
earlier.  The chancellor also found that, because the proceeds were
not disclosed, no bond or additional accounting was required by the
court in the guardianship proceedings.
     On appeal, appellant argues it properly paid the proceeds to
Reid as guardian pursuant to the October 25, 1983 order because, at
that time, there was no requirement that a bond be issued in a
guardianship proceeding and Reid had accepted the appointment as
guardian.  Appellees respond to this argument with case law to the
effect that a guardian is not appointed until bond has been issued. 
See e.g., Sturdy v. Jacoway, 19 Ark. 499 (1858).  
     The parties' reliance on the requirement of a bond or on
Reid's acceptance of appointment as the determinative issue is
misplaced.  The issue before us is whether appellant paid the
proceeds to Reid without court authority.  This issue is controlled
by Ark. Stat. Ann.  57-618 (Repl. 1971), in effect at the time the
proceeds were paid, which provided that letters of guardianship,
"until revoked or cancelled by the court, shall protect persons
who, in good faith, act in reliance thereon."  As determined by the
chancellor, no bond was ever set and no letters of guardianship
were ever issued.  The Probate code of 1949 did not authorize
appellant to pay Reid the proceeds on the strength of a court order
conditionally appointing him guardian, with bond yet to be
determined.  We find no error in the chancellor's ruling in this
regard.
     Appellant's second argument for reversal is that, after paying
the proceeds to the guardian, it had no further obligation to
appellees under the law of trusts.  We answer this argument
summarily.  First, the argument is premised upon the assumption
that the trial court found a post-payment obligation of appellant
to appellees as beneficiaries deriving from the law of trusts.  The
trial court made no such finding or any ruling that appellant had
a continuing obligation to appellees after it paid the proceeds. 
Rather, the ruling was that appellant did not ensure that it
properly paid the proceeds to the guardian and in fact paid the
proceeds without court authority.  Second, the abstract does not
reveal that appellant relied on the law of trusts in the
proceedings below.  The record on appeal is confined to that which
is abstracted.  Mahan v. Hall, 320 Ark. 473, 897 S.W.2d 571 (1995). 
This court does not address arguments that were not raised below. 
Wacaser v. Insurance Comm'r, 321 Ark. 143, 900 S.W.2d 191 (1995). 
     We find no merit to appellant's arguments and affirm the
chancellor's order.
     Dudley, Newbern, and Corbin, JJ., dissent.
     Glaze, J., concurs.*ADVREP9-A*





THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA,
                    APPELLANT,

V.

MELISSA CONRAD FRAZIER AND
MELLONIE CONRAD,
                    APPELLEES.



94-1320

Opinion Delivered:  2-5-96








CONCURRING OPINION




                  TOM GLAZE, Associate Justice

     The suggestion that equity has no subject matter jurisdiction
in this case wholly ignores settled law and the facts.  Although
the majority opinion concludes the chancery judge here had
jurisdiction of this case, I write to explain why the chancellor
had the authority to rule as he did.
     Melissa and Mellonie Conrad were ages eight and nine years old
when their mother, Betty, died in August of 1983.  Betty had a life
insurance policy with The Prudential Insurance Company of America
which provided $30,519.60 in proceeds to the two girls.  After
Betty's death, Melissa and Mellonie went to live with their uncle,
Jerry Reid, who was appointed their guardian on October 25, 1983. 
The guardianship order provided a "bond shall be determined," but
none was.  Nonetheless, Prudential sent the insurance proceeds to
Reid, stating the proceeds were "for the person and estates of
Melissa and Mellonie Conrad," and Reid concedes he knew those
proceeds belonged to the two girls.  He also began receiving
Melissa's and Mellonie's social security payments, totalling
$847.00 a month.  Reid initially placed the life insurance proceeds
in certificates of deposit issued for the girls' benefit.
     Reid testified that he became disabled sometime in 1983 and
did not work, and while he made claims for workers' compensation
and social security benefits, he only commenced receiving them
between 1986 and 1988.  Meanwhile, Reid purchased a bigger house in
1984 and admitted he used some of the girls' life insurance
proceeds to do so.  In the same year, he adopted Melissa and
Mellonie, and said that he understood when he became their adopted
father "their assets were ours and our assets were theirs." 
Nevertheless, Reid asserted "the house does not contain money that
belongs to the two young ladies."  Reid claimed he used the two
girls' monies to care for them, as well as his other four children.
     Melissa and Mellonie brought this action, alleging Reid was
their appointed guardian when he received their life insurance
proceeds from Prudential.  They averred Reid, as guardian, breached
his fiduciary duty and perpetrated fraud upon them by failing to
disclose, protect, and deliver the assets, and such acts on Reid's
part were intentional with knowledge of his fiduciary duty.  The
two women asked for a full accounting from Reid and Prudential,
alleging Prudential, too, had failed to account for the life
insurance proceeds or to require proof of bond when it paid Reid
the proceeds.  After a trial and being informed of Melissa's,
Mellonie's and Reid's allegations and testimony of what occurred,
the chancellor awarded damages to Melissa and Mellonie.
     As is set out clearly and succinctly in A & P's Hole-in-One,
Inc. v. Moskop, 38 Ark. App. 234, 832 S.W.2d 860 (1992), the court
of appeals stated that an accounting is an equitable remedy
designed to provide a means for compelling one, who because of a
confidential or trust relationship has been entrusted with property
of another, to render an account of his actions and for the
recovery of any balance found to be due.
     As this court said in Walters-Southland Institute v. Walker,
Trustee, 217 Ark. 602, 232 S.W.2d 448 (1950), the existence of a
fiduciary relation is one of the well-recognized grounds for equity
jurisdiction of a suit for an accounting.  An accounting may be had
against a fiduciary to determine whether there is, in fact,
anything due the plaintiff.  Here, Reid, as guardian of Melissa's
and Mellonie's estate, was a fiduciary.  Omohundro v. Erhart, 228
Ark. 910, 311 S.W.2d 309 (1958).  Consequently, Melissa and
Mellonie, as wards and plaintiffs, have every right to ask equity
to make Reid and Prudential account for those monies or assets that
might be due the women, and chancery courts clearly had the
authority to grant such relief.Associate Justice Donald L.
Corbin, 2-5-96  *ADVREP9-B*





THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA,
                    APPELLANT,

V.

MELISSA CONRAD FRAZIER and
MELLONIE CONRAD,
                    APPELLEES,



94-1320









DISSENTING OPINION.





     This dissent focuses on this case to illuminate the ageless
determination that probate courts have exclusive jurisdiction of
guardianship matters concerning the persons and estates of wards. 
The chancery court lacked subject-matter jurisdiction of the
guardianship matters in this case, and the case therefore should be
reversed and dismissed.  Moreover, this case illuminates the
confusion this court creates when it interprets our antiquated
constitutional judicial article and attempts to blend its
separation of jurisdiction of trial courts into circuit, chancery,
probate, juvenile, and various combinations thereof.  While I agree
with the majority, based on the cases cited therein, that chancery
courts have jurisdiction of matters concerning trust, fraud, and
accountings and fiduciaries other than those relating to
guardianships, I do not agree that the chancery court has
jurisdiction of such issues or claims when they concern
guardianships.
     This court has recently addressed the issue of a chancery
court's lack of jurisdiction over guardianship matters in Dent v.
Wright, 322 Ark. 256, 909 S.W.2d 302 (1995), where we affirmed in
part a chancery court's rulings on issues of fraud and constructive
trust, but reversed and dismissed in part, for lack of subject-
matter jurisdiction, the chancellor's appointment of a guardian. 
There, we explained the subject-matter jurisdiction relationship
between chancery and probate courts as follows:
     Jurisdiction of the probate court over all matters of
     guardianship, other than guardianships ad litem in other
     courts, is exclusive.  Ark. Const. art. 7,  34; Ark.
     Code Ann.  28-65-107(a) (1987) (emphasis added).  The
     section of the Arkansas Constitution that is now Article
     7, section 34, did not consolidate the chancery and
     probate courts, and, while the judge of the chancery
     court is also the judge of the probate court, the judge
     conducts each court separately.  Wooten v. Penuel, 200
     Ark. 353, 140 S.W.2d 108 (1940).  The section does not
     permit courts of chancery to lift matters over which the
     probate court has exclusive jurisdiction out of probate
     courts and apply equitable principles in disposing of
     controversies cognizable only in probate.  Id. at 357-58,
     140 S.W.2d  at 111; see also Hilburn v. First State Bank,
     259 Ark. 569, 535 S.W.2d 810 (1976) ("probate courts are
     vested with exclusive jurisdiction in matters relative to
     . . . guardians. . . ."); Thompson v. Dunlap, 244 Ark.
     178, 424 S.W.2d 360 (1968) (holding that chancery and
     probate courts are separate tribunals, each having [its]
     own  jurisdiction and that a chancery court cannot
     "inherit jurisdiction" from the probate court in same
     county); Janssen v. Blissenbach, 210 Ark. 22, 193 S.W.2d 814 (1946) (stating that the two courts are wholly
     distinct and operate independently of one another and
     that [the] trial court, sitting as chancery in that case,
     correctly did not pass on questions reserved for
     probate).

Dent, 322 Ark. at 265-66, 909 S.W.2d  at 307.  
     Subject-matter jurisdiction is determined from the pleadings. 
Union Pac. R.R. Co., 316 Ark. 609, 873 S.W.2d 805.  In this case,
the complaint was for an accounting and judgment.  As against Reid,
appellees alleged that he breached his fiduciary duty and committed
fraud.  As against appellant, appellees alleged that appellant
negligently paid the proceeds to Reid by failing to verify Reid's
authority to collect the proceeds and by failing to require proof
of bond.  As against both appellant and Reid, appellees requested
an accounting of and judgment for the proceeds.  Thus, the critical
and threshold issues were whether appellant paid the proceeds to
Reid as the duly qualified, appointed, and serving guardian, and
the accounting of the proceeds.  Such determinations can only be
made by the probate court -- the court that is given exclusive
original jurisdiction of guardianship matters.  Ark. Const. art. 7,
 34; Ark. Code Ann.  28-65-107(a) (1987); Dent, 322 Ark. 256, 909 S.W.2d 302.  There can be no cause of action for fraud, breach of
fiduciary duty, or negligence until the probate court has entered
a ruling on the accounting and judgment for deficiency of the
proceeds.  Thus, while the pleadings raise tort issues that are
cognizable in chancery court, the threshold issues of whether
appellant properly paid the proceeds to Reid as the duly qualified,
appointed, and serving guardian of appellees' persons and estates,
and the accounting of the funds in appellees' guardianship estates
are not cognizable in chancery court.  The chancery court was not
permitted to lift the guardianship matter from the probate court's
exclusive jurisdiction.  Id.  
     The majority opinion contributes to the jurisdictional
confusion by concluding that the chancery court has jurisdiction of
this case, without overruling Dent.  
     The majority opinion illustrates the problems courts face and
compound when they erroneously exercise subject-matter jurisdiction
by referring to Reid as appellees' "former" guardian.  Such a
reference assumes facts not in the record.  Under current law, a
guardianship of the estate of a ward based solely on the ward's
minority does not terminate automatically upon the ward's
attainment of majority.  See generally Ark. Code Ann.  28-65-401
(Supp. 1995).  There is nothing in this record to show that the
probate court has approved a final accounting of the appellees'
accounts as wards and terminated Reid's guardianship.  An
accounting of a ward's account and termination of a guardianship
are matters that lie exclusively in probate court.  Section 28-65-
207.  
     The majority's assumption that Reid is the "former" guardian
magnifies the lack of chancery's subject-matter jurisdiction in
this case.  Moreover, it demonstrates that the chancery court
assumed jurisdiction of this case too soon.  The chancellor should
have transferred the case to probate, settled the accounting, and
determined whether Reid was the duly qualified, appointed, and
acting guardian.  Once those determinations were made by the
probate court, the chancellor could then have exercised
jurisdiction of the fraud and negligence claims.  See, 65th Center,
Inc. v. Copeland, 308 Ark. 456, 825 S.W.2d 574 (1992); In Re
Morgan, 310 Ark. 220, 833 S.W.2d 776 (1992); Forehand v. American
Collection Serv., Inc., 307 Ark. 342, 819 S.W.2d 282 (1991).
     DUDLEY and NEWBERN, JJ., join in this dissent.