Title: Lemon v. Foulston
Citation: 169 Kan. 372, 219 P.2d 388
Docket Number: 37,889
State: Kansas
Issuer: Kansas Supreme Court
Date: June 10, 1950

169 Kan. 372 (1950)
219 P.2d 388
DIMMIE LEMON, Appellant,
v.
SIDNEY L. FOULSTON, as Administrator of the Estate of Bates T. Hamilton, Deceased, Appellee.
No. 37,889

Supreme Court of Kansas.
Opinion filed June 10, 1950.
J. Wirth Sargent, of Wichita, argued the cause, and W.D. Jochems, Emmet A. Blaes, Roetzel Jochems, Robert G. Braden and S.C. Durbin, all of Wichita, were with him on the briefs for the appellant.
Enos E. Hook, of Wichita, argued the cause, and Sidney L. Foulston, John H. Gerety and Sidney L. Foulston, Jr., all of Wichita, were with him on the briefs for the appellee.
Lester Luther, United States Attorney, Eugene W. Davis, Assistant United States Attorney, and Malcolm Miller, Assistant United States Attorney, filed a brief amicus curiae on behalf of the United States of America.
The opinion of the court was delivered by
THIELE, J.:
The question presented in this appeal concerns ownership of United States Savings Bonds, Series G, issued in the name of co-owners, and arises out of the following:
Bates T. Hamilton and Dimmie E. Hamilton, who had been married in 1911, were divorced on February 6, 1946, the decree of divorce making no provision for settlement of any property rights between them. On February 7, 1946, the two went to the Fourth National Bank in Wichita, in which they had a joint account, where the sum of $4,800 was withdrawn and eight bonds of the above series totaling the principal amount of $4,800 were purchased, the names of the payees being Bates T. Hamilton or Mrs. Dimmie E. Hamilton. Under date of February 28, 1946, the above bank issued its safekeeping *373 receipt that it had received of Bates T. Hamilton or Mrs. Dimmie E. Hamilton the above eight bonds for safekeeping and that the bonds would be surrendered only upon return of the receipt. At an appropriate place on the receipt for the signature of the depositor only the name of Bates T. Hamilton was signed. On July 18, 1948, Bates T. Hamilton died intestate and under appropriate proceedings in the probate court Sidney L. Foulston was appointed as administrator of his estate and duly qualified as such. At some undisclosed date Dimmie E. Hamilton remarried and became Dimmie Lemon. On December 28, 1948, Dimmie Lemon commenced an action against the administrator in the district court to replevin the bonds. The defendant demurred on the ground that the petition showed on its face the court was without jurisdiction. No ruling was made on this demurrer. On April 8, 1949, Dimmie Lemon filed in the probate court, in the estate of Bates T. Hamilton, her petition for allowance of demand in which she alleged issuance of the bonds in manner above stated and that she was then the sole owner and that the estate of Bates T. Hamilton had no interest in the bonds and that the administrator claimed the bonds and wrongfully refused to deliver possession to her although demand had been made. In her statement of demand she also made reference to her action pending in the district court, and prayed that her demand be transferred to the district court for hearing and in due course that was done.
No formal order that the replevin action and the demand be heard together seems to have been made but evidence was taken from which the trial court, on September 19, 1949, found that the bonds "were the sole and exclusive property of Bates T. Hamilton in his lifetime and that the petitioner had no right, title or interest therein, and upon his death they become and now are a part of the assets of his estate" and that the petitioner should be required to execute such instrument as may be necessary to effectuate the finding and judgment of the court, and it entered judgment accordingly. On the following day the parties stipulated that the evidence taken might be considered in both proceedings and that stipulation was approved in the journal entry of judgment later filed. Dimmie Lemon's motion for a new trial was denied and she perfected her appeal to this court.
An extensive review of the evidence is not necessary, for there was not much controversy as to the facts. The evidence of Dimmie *374 Lemon showed the facts as to the divorce, the joint bank account, the purchase of the bonds and the deposit of them for safekeeping as heretofore outlined. It was stipulated that the bonds were in the above named bank and that Bates T. Hamilton in his lifetime had the right to obtain the bonds if he so desired. The administrator called Dimmie Lemon as a witness, and she testified as to the divorce and that "We had no property at all except the cash." Over objection that the evidence was immaterial and irrelevant, did not prove or disprove any issue, and was incompetent under the "United States Treasury Department Regulations Governing United States Savings Bonds" later referred to, inquiry was made concerning letters written by Dimmie to Bates which were received in evidence, and material parts of which are summarized. In a letter of February 27, 1946, she said, "Did you get your bonds? As soon as we can I will help you with them &amp; change them to something else." In a letter of March 20, 1946, she referred to the fact she had collected two sums of money due and had checked $650 out of the bank, "so all together it was $5,424 &amp; it is just as safe in Mid Kans as anywhere." (There is no statement as to how or in whose name it was invested in Mid Kans which is said to refer to a Savings &amp; Loan Association.) She also advised him not to worry about the bonds as she would help at the end of six months to get "it" out of the bank and "I think you would be more satisfied to put in Mid Kans." Further on she said, "So you see I can't get far with $5,000." In another letter of May 15, 1946, she said she would keep the bonds in mind so when the six months were up if he wanted he could draw them out and put the money in Mid Kans which she thought was best. Under date of January 6, 1947, Dimmie Lemon wrote a letter to an employee of the escrow department of the above-named bank that she would like to have her name released on the bonds and if required papers were sent she would sign a release and return it. Under date of January 9, 1947, the bank employee answered that the receipt for the bonds was signed only by Bates T. Hamilton and therefore the bonds would be delivered to him upon his returning the original receipt. The portion of the letter advising as to reissue of the bonds to Mr. Hamilton need not be set forth. There is no showing that Bates T. Hamilton was aware of the last two letters. There was no contention that any effort was ever made to surrender the bonds originally issued either for payment or for reissue to a single owner. *375 On cross examination she testified that after the divorce she and Bates T. Hamilton remained on friendly terms; that they had a joint account in the above-named bank; that she wrote the check for $4,800 for the bonds and that Mr. Hamilton was with her at the time.
In her brief appellant presents as the principal question whether the bonds, issued as above stated, upon the death of Bates T. Hamilton became the property of Dimmie Hamilton Lemon as the surviving co-owner, or became an asset of the estate of Bates T. Hamilton, the answer depending on whether the federal regulations above mentioned govern. Secondary questions deal with admission of evidence and the sufficiency of evidence to support the judgment.
Appellant's contention in substance is that bonds of the type involved, issued in the name of co-owners, can only be issued in accordance with the above-mentioned regulations, which are binding and controlling, and that under such regulations, as applied to the facts of this case, the bonds belong to the survivor. That contention requires a review of those regulations. It is noted that there is no contention but that the bonds were issued under and conformably to the regulations issued by the Treasury Department of the United States under date of February 13, 1945. The section numbers hereafter mentioned are part of such regulations. Under 315.1 the regulations "apply generally to all United States Savings Bonds of all series of whatever designation and bearing any issue dates whatever, except as otherwise specifically provided herein" and under 315.2 such bonds are issued only in registered form. Under 315.5 Series G bonds may be registered in the names of individuals in their own right as set forth in 315.4 and under the latter section the bonds may be registered only in the names of individuals in one of the following forms, the only one here applicable reciting:
"`John A. Jones OR Mrs. Ella S. Jones.'
Subpart D deals with limitations on transfer and judicial proceedings, the portions thereof, and so far as here pertinent read:
...............
Subpart H deals with general payment and redemption provisions and that a Series G bond may be redeemed in whole or in part at the option of the owner prior to maturity, the details not being set forth for the reason no such redemption was attempted here. Subpart L makes provisions concerning two name co-ownership bonds.
..............
..............
..............
We note also Subpart N dealing with deceased owners, the first sentence of Sec. 315.47 reading as follows:
There has been no previous case before this court involving the force and effect of the above treasury regulations, nor dealing with any question of ownership of United States Savings Bonds where co-owners have been named, or where one owner is named but the bond is payable on his death to another. In view of the concession of the appellee hereafter referred to, it is not necessary that we make an exhaustive review of the decisions of other states, where the question of ownership has been considered.
In Meyer v. Mercier, 102 Colo. 422, 80 P.2d 332, (1938) the action was to determine ownership of $7,500 of "Baby Bonds" each made payable to "Mrs. Josephine M. Stanley or Mrs. Corrine S. Mercier," the question being whether title passed under the will of Mrs. Stanley or whether the bonds belonged to Mrs. Mercier as the named survivor. In part the Supreme Court said that under art. VI, sec. 2 of the federal constitution, the laws of the United States were the supreme law of the land and every judge in every state is bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding, and that when congress determined that direct obligations of the government should be payable as provided by the act and regulations thereunder, it was not for the court to say that it had exceeded its powers. The judgment of the lower court holding the survivor to be the owner was affirmed.
In Conrad v. Conrad, 66 Cal. App. 2d 280, 152 P.2d 221, (1944) Conrad as agent for Mrs. Inman purchased United States Savings Bonds payable to Mrs. Inman or Mr. Conrad, which he placed in her safety deposit box, making a list which was delivered to her. She retained possession of the bonds until her death. The action was to determine ownership claimed by Conrad, the plaintiff, and the estate of Mrs. Inman. In that opinion may be found reference to Sinift v. Sinift, 229 Iowa 56, 293 N.W. 841, relied on by appellee here, but which the California court did not follow. The court in deciding the bonds went to the survivor and not to the estate of the deceased co-owner, said:
"In the last cited case the court said:
In re Estate of Murray, 236 Iowa 807, 20 N.W.2d 49, (1945) the proceeding was to determine ownership of bonds purchased by Murray, one-half of which were made payable to his wife Mary E. Murray and the other half to Edward J. Murray or Mary E. Murray. The lower court determined the bonds belonged to Mary E. Murray and the Supreme Court affirmed. The court quoted approvingly from Conrad v. Conrad, supra, a portion of the quotation made above as well as from cases from other jurisdictions to the *379 same effect, and held that the United States Treasury Bonds were issued under regulations which created a contractual relationship as to the co-owners, and that such bonds were the absolute property of the surviving co-owner.
In Harvey v. Rackliffe, 141 Me. 169, 41 A.2d 455, (1945) the bonds involved were issued in the name of William A. Griffin, payable on death to Etta E. Covel, a form permitted under United States Treasury regulations. The reasoning of that case is applicable to co-ownership bonds. There a rather exhaustive review of the authorities may be found to which reference is made, and the weight of authority found to be in line with the rule of the cases previously cited. That court denominated the decisions in Decker v. Fowler, 199 Wash. 549, 92 P.2d 254, 131 A.L.R. 961; Sinift v. Sinift, 229 Iowa 56, 293 N.W. 841; and Deyo v. Adams, 178 Misc. 859, 36 N.Y.S.2d 734, as unsatisfactory. The holding of the court is reflected in the headnotes appearing in the official report:
Many other decisions to like effect may be found in the annotations in 140 A.L.R. 1435, 161 A.L.R. 170, 168 A.L.R. 245, 173 A.L.R. 550, and other annotations therein referred to.
In order that there be no doubt as to the appellee's position we quote the opening part of the argument set forth in his brief:
Following the above is a resume of the evidence introduced over appellant's objection, and our attention is directed to the evidence admitted and the weight to be given it, and reference is made to our decision in Spark v. Brown, 167 Kan. 159, 205 P.2d 938, where it was held that when one desires to create a joint tenancy with the right of survivorship language must be used to make that intention clear, otherwise it will not be created, and to Sinift v. Sinift, 229 Iowa 56, 293 N.W. 841, where it was held, in effect, that Congress in enacting legislation pertaining to United States Bonds, did not intend to authorize the Secretary of the Treasury to fix by regulation the title to or the ownership of the bonds or the money owing thereon, and to Katz v. Driscoll, 86 Cal. App. 2d 313, 194 P.2d 822, (1948) which, while recognizing the rule of cases holding that as between the government and the survivor of co-ownership bonds, the courts will recognize the survivor, states that there is no case that holds that where the bonds are the result of fraud the persons defrauded cannot pursue the proceeds of such bonds in the hands of one who is a party to the fraud, and says that to so hold would put a high premium on fraud. In that case Dolan, on his representation that he was an indigent, received public aid. Actually he was in funds which he invested in United States Savings *381 Bonds, payable to himself or in event of his death to Driscoll. Dolan's administrator claimed the bonds, and the opinion deals with a question of pleading. The general rule heretofore noted is recognized as to payment to the beneficiary, but it was held that equity and fair dealing require that a person benefiting by a fraudulent transaction be required to disgorge the proceeds independently of the contract between him and the federal government. In substance it was held Dolan's administrator was entitled to only so much of the proceeds of the bonds as was necessary to make up the deficiency of assets in his hands.
Spark v. Brown, supra, did not deal with United States Savings Bonds. In any event a reading of that opinion will disclose that it is not in point here on the facts. Sinift v. Sinift, supra, has been criticized and not followed, as cases reviewed above disclose. Concededly it promulgates a minority rule. Katz v. Driscoll, supra, is hardly in point here for appellee makes it clear that he did not in the trial court and does not in this court, assert that Dimmie Lemon was guilty of any fraud and that perhaps the worst that can be said is that her conduct smacks of unfair dealing that equitable principles ought to prevent and she should not be permitted to use the treasury regulations as a lock on the door of a court of equity. We may observe that the bonds were purchased when Bates and Dimmie were both present, he took them into possession and retained them and must be presumed to have known that if he died she would get the bonds. He made no effort to cash the bonds, as he could have done without let or hindrance and so far as the record is concerned there is no evidence whatever that he claimed at any time that he was sole owner, or that Dimmie had no interest in the bonds, or that she had deceived or defrauded him in the slightest.
While we have no difficulty in understanding the contention advanced by the appellee as summed up in the question he says is the issue presented, we cannot agree.
In our opinion, the majority rule heretofore stated in Conrad v. Conrad, supra, and other cases, is soundly based on statute and authority and should be followed. Under that rule, and under the undisputed facts in this case, when Bates T. Hamilton and Dimmie Hamilton purchased the bonds as co-owners and Bates T. Hamilton then took and retained possession of them, without making any effort to cash the bonds or to cause them to be reissued in his name as sole owner, upon his death the bonds became the sole property of Dimmie as the surviving co-owner.
*382 In view of our conclusion we need not discuss the question of the competency of evidence offered by the appellee further than to say that insofar as it tended to show an oral gift of Dimmie's interest to Bates, or that Dimmie might have been willing to consent to a reissue had Bates so wanted, it was incompetent as tending to vary the terms of the contract evidenced by the bonds and the treasury regulations under which they were issued.
It may be observed that Dimmie Lemon's claim to the bonds, which were in the possession of the administrator of the estate of Bates T. Hamilton, was properly asserted in the probate court.
The judgment of the trial court is reversed and the cause is remanded to the trial court to render judgment in favor of the appellant Dimmie Lemon.