Cochran's Estate, In re

• Decision Date: 22 March 1960
• Citation: 159 A.2d 514,398 Pa. 506
• Parties: Matter of the ESTATE of Lillian COCHRAN, also known as Lillian Cochran Horstman, also known as Lillian A. Cochran Horstman, also known as Mrs. Lillian Horstman, Deceased. Appeal of Walter HORSTMAN.
• Court: Pennsylvania Supreme Court

Page 514

159 A.2d 514

398 Pa. 506

Matter of the ESTATE of Lillian COCHRAN, also known as

Lillian Cochran Horstman, also known as Lillian A.

Cochran Horstman, also known as Mrs.

Lillian Horstman, Deceased.

Appeal of Walter HORSTMAN.

Supreme Court of Pennsylvania.

March 22, 1960.

John E. Britton, Gifford, Graham, MacDonald & Illig, Erie, for appellant.

Alban W. Curtze, Curtze & Gent, Erie, for appellee.

Before CHARLES ALVIN JONES, C. J., and BELL, MUSMANNO, BENJAMIN R. JONES, COHEN, BOK, and McBRIDE, JJ.

BENJAMIN, R. JONES, Justice.

Lillian C. Horstman, a resident of Erie County, died on May 2, 1957, survived by her husband, Walter Horstman, and several nephews and nieces.

On August 10, 1936--four years prior to her marriage to Walter Horstman--decedent made her last will and, upon her death, letters testamentary were issued to her niece, Mrs. Louise Quinn. Together with Walter Horstman and his counsel, Mrs. Quinn opened decedent's sale deposit box in the First National Bank of Erie, a box registered in the joint names of decedent and Mrs. Quinn. In that box were, inter alia, 115 United States Government Series 'E' bonds, having a face value of $13,100, all of which bonds were registered as payable to decedent or some other named persons--nephews and nieces--as co-owners. ¹ Decedent purchased these bonds with her own funds and kept them at all times in the safe deposit box to which only decedent and Mrs. Quinn had access.

In the Orphans' Court of Erie County Walter Horstman secured a rule upon Mrs. Quinn, as executrix, to show cause why these bonds should not be included in the inventory of decedent's estate. After the filing of answers and a hearing, that court dismissed Horstman's rule and granted leave to the executrix to distribute the bonds to the co-owners named therein. From that order Horstman appeals.

Horstman's only contention--gleaned from an examination of the pleadings and stipulated facts--is that the attempt by decedent to make gifts of these bonds to the several named co-owners failed because of lack of delivery and, therefore, the bonds still belong to decedent's estate. ² The court below, relying upon the United States Treasury regulations which govern the issuance of these bonds, determined that the bonds belonged to the surviving co-owners and formed no part of decedent's estate. ³

The question involved is whether, by virtue of the United States Treasury regulations governing the issuance of these savings bonds, decedent's registration of each of the bonds in the name of herself or another named person passed a valid property interest in the bond to such other named person?

These savings bonds were issued pursuant to regulations promulgated by the United States Treasury Department under authority delegated by the Congress to the Secretary of the Treasury. ⁴ A Series 'E' bond is issuable in one of three ways: (1) in the name of one person; (2) in the names of two, but not more than two, persons (a 'co-owner bond'); (3) in the name of one person, payable on death to a designated beneficiary (a 'beneficiary' or 'POD' bond). ⁵ The bonds in controversy are all 'co-owner bonds': as to such bonds, the regulations provide: (a) during the lives of both co-owners, the bond will be paid to either co-owner, upon surrender of the bond and without requiring the signature of the other co-owner, and, upon payment to either co-owner, the other co-owner shall cease to have any interest in the bond; ⁶ (b) during the lives of both co-owners, the bond, upon surrender thereof and upon joint request, will also be paid to both co-owners; ⁷ (c) except for mistake or change of name, the bond will not be reissued, during the lives of both co-owners; ⁸ (d) if either co-owner dies without the bond having been surrendered for payment, the surviving co-owner will be recognized 'as the sole and absolute owner of the bond' and payment will be made only to such surviving co-owner by the United States Government. ⁹

The regulations further provide that: (1) '* * * The form of registration used must express the actual ownership of and interest in the bond and, except as otherwise * * * provided * * *, will be considered as conclusive of such ownership and interest * * *'; ¹⁰ (2) 'Neither the Treasury Department nor any agency * * * will accept notices of adverse claims or of pending judicial proceedings or undertake to protect the interests of litigants who do not have possession of a bond'; ¹¹ (3) except in certain instances not presently relevant, 'Savings bonds are not transferable and are payable only to the owners named therein * * *'; ¹² (4) '* * * A claim against an owner or co-owner of a savings bond and conflicting claims as to ownership of or an interest in such bond as between co-owners * * * will be recognized when established by valid judicial proceedings, and payment or reissue will be made, upon presentation and surrender of the bond, except as follows; (a) No such proceedings will be recognized if they would give effect to an attempted voluntary transfer inter vivos of the bond or would defeat or impair the rights of survivorship conferred by the regulations in this part upon a surviving co-owner or beneficiary * * *; ¹³ (5) No judicial determination will be recognized which would give effect to an attempted voluntary transfer inter vivos of a bond or would defeat or impair the rights of survivorship conferred by these regulations upon a surviving co-owner * * *, and all other provisions of this subpart are subject to this restriction.' ¹⁴

Although previously considered by appellate courts in other jurisdictions, the present question is one of first impression in this Court. In the vast majority of jurisdictions throughout the United States the surviving co-owner of a bond is considered the sole and absolute owner of such bond, at least in the absence of proof of any fraud or other inequitable conduct. Moore v. Marshall, 302 Ky. 729, 196 S.W.2d 369, 169 A.L.R. 245; 173 A.L.R. 550; 37 A.L.R. 1221, 1223, 1224 and cases therein collected. In Pennsylvania our county courts have subscribed to this view. In re Prifer's Estate, 53 Pa.Dist. & Co.R. 103; In re Evan's Estate, 57 Pa.Dist. & Co.R. 55; In re Schablein's Estate, 68 Pa.Dist. & Co.R. 634; Thomas v. McGroarty, 69 Pa.Dist. & Co.R. 108; Dowd v. Lynch, 81 Pa.Dist. & Co.R. 413, 2 Fiduciary R. 242; In re Graham's Estate, 3 Pa.Dist. & Co.R.2d 218; In re Andrea's Estate, 5 Pa.Dist. & Co.R.2d 777; Lingousky v. Gillespie, 11 Pa.Dist. & Co.R.2d 46.

The majority view takes the position that the question involved is not one of gift, but rather of contract and that the federal regulations, by reason of the authority of the Secretary of the Treasury to impose conditions upon the issuance of the bond and the incorporation by reference of such regulations in the bond, are part of the bond and constitute a contract between the bond purchaser and the issuer, i. e. the United States Government, and the surviving co-owner stands in the position of a third party beneficiary to such a contract. The minority view takes the position that 'The contract between the Government and the purchaser of Government bonds fixed the legal title to the bonds for the purpose of protecting the Government against suits involving title but does not and should not affect other legal rights of third parties or change settled rules of law not necessary to effectuate its purpose'. Moore v. Brodrick, D.C., 123 F.Supp. 108, 109, affirmed 10 Cir., 226 F.2d 105; 37 A.L.R.2d 1221 and cases therein collected. In some jurisdictions (for example, New York, Washington, Arizona) the majority rule has been incorporated in statutes. 37 A.L.R.2d 1228, 1229.

While the identical problem has not been presented to our appellate courts, several cases throw some light on the general problem.

In Katz v. Lockman, 356 Pa. 196, 51 A.2d 619, Lockman was the owner of United States savings bonds, having a face value of $7,300, which were registered in his own name; Lockman and his son, Harvey, removed the bonds from the former's box and Lockman applied for a reissuance of the bonds in the names of 'Samuel Lockman or Harvey Lockman' and the bonds were reissued in these names. After Lockman's death, his administratrix, alleging that Harvey Lockman had secured the transfer and assignment of the bonds through fraud and undue influence, brought a bill in equity seeking the transfer and delivery of the bonds to decedent's estate. The court below directed such transfer and delivery and this Court sustained its action. While the federal regulations were not mentioned in the Court's opinion, Katz held that fraud or inequitable conduct on the part of the surviving co-owner of a Government savings bond will defeat sole ownership of the proceeds of the bonds. In Myers' Estate, 359 Pa. 577, 60 A.2d 50, 51, the decedent, Alfred Myers, purchased United States Savings Bonds with his own funds and registered them in the names of 'Alfred T. Myers or Mrs. Hazel L. Wallick', the latter being his sister: decedent retained custody of the bonds in a safe deposit box rented in his name and that of his mother. The Commonwealth assessed a transfer inheritance tax upon the full value of these bonds and this assessment was upheld by the court below. Mrs. Wallick appealed to this Court on the ground, inter alia, that, under the federal regulations, a joint tenancy with right of survivorship was created and that the tax should have been assessed on only one-half of the value of the bonds. Without mentioning the federal regulations, this Court held that, since the decedent retained complete custody and exercised exclusive dominion over the bonds, Mrs. Wallick's possession and enjoyment of the bonds were postponed until decedent's death; therefore, the Commonwealth could tax the entire value of the bonds since their transfer was not intended to take effect in possession or enjoyment until at or after death. In re Estate of Diskin, ...