Estate of Gullett, In re

• Decision Date: 04 May 1987
• Docket Number: No. 20472,20472
• Parties: In re ESTATE OF GULLETT, Deceased. *
• Court: Ohio Court of Common Pleas

Page 8

36 Ohio Misc.2d 8

521 N.E.2d 14

In re ESTATE OF GULLETT, Deceased. ^*

No. 20472.

Court of Common Pleas of Ohio,

Highland County,

Probate Division.

May 4, 1987.

Carroll V. McKinney, Hillsboro, for Exceptors.

Robert B. McMullen, Hillsboro, for Adm'r.

DAVIS, Judge.

This cause came on before the court on the exceptions to the inventory filed by Donald L. Lawson and George P. Lawson. Exceptor's objections are to the value of a promissory note and security agreement dated February 24, 1984 given by Charles W. Lawson to Myrle E. Gullett with a lien on a 1970 Valiant Mobile Home, the unpaid balance on date of death listed at $5,081.50 and appraised at $2,000.

In 1983, Myrle Gullett established $6,000 worth of certificates of deposit ("C.D.s") by entering into written contracts with First Security Bank pursuant to R.C. 2131.10, making the same payable on her death ("P.O.D.") to Donald Lawson.

The legislature in R.C. 2131.10 has provided a means for transferring funds to a survivor without compliance with the formalities of the statute of wills. Eger v. Eger (1974), 39 Ohio App.2d 14, 68 O.O.2d 150, 314 N.E.2d 394; Tonsic v. Holub (1968), 13 Ohio App.2d 195, 42 O.O.2d 341, 235 N.E.2d 239. The owner during his lifetime retains the right to withdraw the funds in whole or in part as though no beneficiary has been named, and to designate a change in beneficiary. The interest of the beneficiary does not vest until the death of the owner. The C.D.s do not become a part of the decedent's estate, Eger v. Eger, supra. The fundamental premise of the statute is one based on contract with the bank and not of inheritance. The beneficiary inherits nothing from decedent. He becomes the owner of P.O.D. funds upon the death of the lifetime owner because of the contractual arrangement the lifetime owner had with the bank.

During her lifetime, Myrle Gullett took three additional actions which affected her financial status. On February 24, 1984, she signed a note and security agreement with Charles W. Lawson to 1st Security Bank in the principal sum of $8,078.40, pledging the $6,000 in C.D.s payable to Donald Lawson as security; assigned each C.D. to the bank; and became the payee on a note and security agreement from Charles W. Lawson with a 1970 Valiant Mobile Home as security.

Exceptor claims Myrle Gullett was an accommodation party for Charles W. Lawson on the note to the bank. R.C. 1303.51(A) defines an accommodation party as "one who signs the instrument in any capacity for the purpose of lending his name to another party to it." Exceptor's Exhibit "B" shows that under the signature of each of the makers is the following language: "[ ] if checked, the signature below was required as a condition of credit." Neither square is checked. Exceptor's Exhibit "B" also contains a box with the following language: "any person who signs within this enclosure does so to give you a security interest in the property described above, but assumes no personal obligation to pay this note." No signature appears in this box. The implication is clear that Myrle Gullett was personally liable upon said note.

Unless the instrument otherwise specifies, two persons who sign as makers are jointly and severally liable even though the instrument contains the words "I promise to pay," as does Exceptor's Exhibit "B." R.C. 1303.17(E). If they are joint makers, as among themselves, they are presumed liable in equal amounts. However, if one of the parties pays the note, he may be entitled to contribution to the extent of the particular terms of the contract between said comakers.

Assuming that Myrle Gullett was an accommodation maker on said note, her liability is subject to the same rules as the liability of any other maker except that an accommodation maker is not liable to the party accommodated. R.C. 1303.51(E). The accommodation maker does have the right to recover from the party accommodated. Specifically, R.C. 1303.51(E) provides that if the accommodation maker pays the instrument he has a right of recourse on the instrument against such party. This is a contract right and not a right of inheritance. (Note that an accommodation maker may not have signed gratuitously; he may be a paid surety or receive other consideration from the party accommodated.)

In addition to signing the note as a maker, Myrle Gullett pledged the P.O.D. C.D.s as collateral for the loan and by separate instruments assigned each P.O.D. C.D. to the bank, authorizing the bank to charge against said P.O.D. C.D.s any notes representing the unpaid balance of the loan. The legal effect of this action by Myrle Gullett cannot be understated. She surrendered by contract to the bank all rights to said P.O.D. C.D.s subject to the terms of her loan agreement. That she had a right to do so cannot be questioned. As stated above, the owner of P.O.D. C.D.s during her lifetime retains the right to withdraw the funds and the beneficiary has no vested interest that can prevent such action. Whatever the intended purpose, Myrle Gullett by contractual agreement placed these P.O.D. C.D.s not only beyond the reach of the beneficiary, but also deprived herself of access to them. While pledged as security, she could not cash them for her own use and had the loan become in default during her lifetime, the bank could have satisfied its note by applying the P.O.D. C.D.s to it.

On July 28, 1985, Myrle Gullett died. On December 30, 1985, the bank satisfied its note from the P.O.D. C.D.s and paid the surplus of $1,105.02 to Donald Lawson. The bank had the explicit contractual authority to do so and it properly accounted for the surplus to Donald Lawson. Once the note was satisfied from the pledge and assigned collateral, the bank was required by R.C. 1309.45(B) to account to the debtor for any surplus. R.C. 1309.45(B) provides in part: " * * * If the security agreement secures an indebtedness, the secured party must account to the debtor for any surplus, and unless otherwise agreed, the debtor is liable for any deficiency." The debtor, Myrle Gullett, though, had designated these C.D.s as payable on death to Donald Lawson, so that any net amount realized from said C.D.s was not an asset of the estate, but rightfully vested in Donald Lawson at Myrle Gullett's death.

It is to be emphasized here that what vested in Donald Lawson at Myrle Gullett's death was the surplus only. Myrle Gullett had contracted away, during her lifetime, any and all rights to the P.O.D. C.D.s including her own. Donald Lawson could not have received any more from the P.O.D. C.D.s than Myrle Gullett could have received during her lifetime.

Exceptor urges that since the bank could have elected to collect on the note from either Charles Lawson or decedent's estate, and that because they elected to apply the pledged and assigned P.O.D. C.D.s to the note, he should stand in the shoes of Myrle Gullett and collect the full value of the P.O.D. C.D.s as an heir. He cites 31 Ohio Jurisprudence 3d (1981) 248-250, Section 175. This section r...