Freedland's Estate, In re
| Decision Date | 24 February 1972 |
| Docket Number | Docket No. 11072,No. 2,2 |
| Citation | 38 Mich.App. 592,197 N.W.2d 143 |
| Parties | In the matter of the ESTATE of William C. FREEDLAND, Deceased. Kittredge R. KLAPP, Administrator of the Estate of William C. Freedland, Deceased, Plaintiff-Appellant, v. BEVERLY HALL FOUNDATION, Defendant-Appellee |
| Court | Court of Appeal of Michigan — District of US |
Kittredge R. Klapp, Neithercut & Neithercut, Flint, for plaintiff-appellant.
Matthew Davison, Jr., Flint, for defendant-appellee.
Before QUINN, P.J., and J. H. GILLIS and VanVALKENBURG, * JJ.
The appellant is the administrator of the estate of William C. Freedland who died possessed, Inter alia, of $11,500 in series H United States Treasury bonds. These bonds were purchased by the decedent in 1961 and registered as follows: 'William C. Freedland P.O.D. Beverly Hall Foundation'. Beverly Hall Foundation is a nonprofit corporation organized under the laws of Pennsylvania. The administrator of the estate of William C. Freedland informed Beverly Hall Foundation of the registration and informed it of his intention to cash the bonds and treat them as an asset of the estate. The administrator proceeded to cash the bonds and petitioned probate court for an order authorizing the amendment of the inventory to include the proceeds of these bonds. Beverly Hall Foundation filed an objection to the court's entry of such order contending it was the owner of said proceeds by virtue of the registration, or, in lieu thereof, praying that said administrator be determined to hold said proceeds as constructive trustee for Beverly Hall Foundation. The probate court awarded the proceeds to the Foundation and on appeal the circuit court, on January 30, 1970, affirmed. The parties are not before us upon grant of leave to appeal.
The appellant has consistently maintained that, under the treasury regulations controlling the issuance of United States bonds, a corporation may not be named as a P.O.D. beneficiary. The courts below were not convinced that such a prohibition could be distilled from the regulations and read the language of the regulations in a light favorable to the Beverly Hall Foundation. Both parties have agreed that the relevant treasury regulations involved are those contained in the Ninth revision of the department's circular No. 530, issued December 23, 1964. The Foundation alternatively argues, should the regulations not be found to support its position, for a constructive trust upon the proceeds.
We begin our discussion of this case with a few observations concerning the status to be accorded to the treasury regulations. The authority of Congress to issue bonds derives first from the U.S.Const. art, I, § 8:
'The Congress shall have Power * * * to borrow Money on the credit of the United States * * *.'
Congress, through 65 Stat. 26 (1951), 31 U.S.C. § 757c, has passed this power on to the Secretary of the Treasury:
'The Secretary of the Treasury, with the approval of the President, is authorized to issue, from time to time, through the Postal Service or otherwise, United States savings bonds and United States Treasury savings certificates, the proceeds of which shall be available to meet any public expenditures authorized by law, and to retire any outstanding obligations of the United States bearing interest or issued on a discount basis.
The various issues and series of the savings bonds and the savings certificates shall be in such forms, shall be offered in such amounts, subject to the limitation imposed by section 757b of this title, and shall be issued in such manner and subject to such terms and conditions consistent with subsections (b)--(d) of this section, and including any restrictions on their transfer, as the Secretary of the Treasury may from time to time prescribe.'
The regulations issued by the Secretary of the Treasury, insofar as they are consistent with the statutory powers delegated to him, have the force of Federal law, and, by virtue of the 'Supremacy Clause,' U.S.Const. art. VI, become the supreme law of the land. Yiatchos v. Yiatchos, 376 U.S. 306, 84 S.Ct. 742, 11 L.Ed.2d 724 (1964); Free v. Bland, 369 U.S. 663, 82 S.Ct. 1089, 8 L.Ed.2d 180 (1962); United States v. Janowitz, 257 U.S. 42, 42 S.Ct. 40, 66 L.Ed. 120 (1921); Ervin v. Conn, 225 N.C. 267, 34 S.E.2d 402 (1946); Harvey v. Rackliffe, 141 Me. 169, 41 A.2d 455, 161 A.L.R. 296 (1945); In re Cochran's Estate, 398 Pa. 506, 159 A.2d 514 (1960); Parkinson v. Wood, 320 Mich. 143, 30 N.W.2d 813 (1948).
State statutes inconsistent with treasury regulations properly promulgated must yield. Yiatchos, supra. Thus, state laws of inheritance and succession are inapplicable to U.S. bonds, for fear that making such bonds subject to state law would 'lead to a great diversity of rules regulating title and redemption and would subject the entire financing plan of the Federal Government to exceptional uncertainty by making identical transactions subject to the vagaries of the several states and would tend to retard the sale of these bonds.' Succession of Tanner, 24 So.2d 642 (La.App.1946).
The purchase of U.S. Bonds has often been held to create a contract between the U.S. Government and the purchaser. Ervin v. Conn, Supra; In re Chase's Estate, 82 Idaho 1, 348 P.2d 473 (1960). Under this contract theory a coowner or P.O.D. beneficiary has the status of third-party beneficiary. In re Cochran's Estate, Supra. In re DiSanto Estate, 142 Ohio St. 223, 51 N.W.2d 639 (1943). Parkinson v. Wood, Supra. The terms of the contract obliges the Government to pay the proceeds of such bonds to the purchaser or the named beneficiary. Roman v. Smith, 228 Ark. 833, 314 S.W.2d 225 (1958); Tanner v. Ervin, 250 N.C. 602, 109 S.E.2d 460 (1959). Attempts by the primary registrant to bequeath the bonds to another does not defeat the named beneficiary's rights under the contract. Davies v. Beach, 74 Cal.App.2d 304, 168 P.2d 452 (1946); Edds v. Mitchell, 143 Tex. 307, 184 S.W.2d 823 (1945); Ex Parte Little, 259 Ala. 532, 67 So.2d 818 (1953). Likewise attempts by the primary registrant to make gifts of the bonds Inter vivos will not defeat these rights, Moore's Administrator v. Marshall, 302 Ky. 729, 196 S.W.2d 369, 168 A.L.R. 241 (1946); and as to gifts Causa mortis, see Fidelity Union Trust Co. v. Tezyk, 140 N.J.Eq. 474, 55 A.2d 26, 173 A.L.R. 546 (1947).
These cases and others suggest the necessity of looking to the treasury regulations, as a contract, to determine the respective rights and obligations of the parties whose names appear upon a U.S. bond. Occasionally the rules prescribed by the Secretary of the Treasury will be modified by equitable considerations, a factor to be discussed further Infra. Generally, however, the courts will not wander too far afield from the text of department circular 530. Our present problem is deciding what the regulations say, so that we may afterwards discover from the regulations the rights of the parties involved. To this end we are aided by the general rules of statutory construction.
The courts below recognized the importance of the treasury regulations to this issue, and also sought to interpret the regulations in accord with a general rule of statutory construction. They specifically found that the word 'may' in an important section of the regulations was indicative of a permissive, rather than restrictive, rule concerning corporations as P.O.D. beneficiaries. That section, 315.6(a), reads:
'Registration of bonds is restricted on original issue, but not on authorized reissue, to persons (whether natural persons or others) who are:
'(1) residents of the United States, its territories and possessions, the Commonwealth of Puerto Rico, and the Canal Zone;
'(2) citizens of the United States temporarily residing abroad; and
'(3) civilian employees of the United States of members of its Armed Forces, regardless of their residence of citizenship.
'However, other natural persons may be designated as coowners or beneficiaries with natural persons of the above classes, whether on original issue or reissue, except that registration is not permitted in any form which includes the name of any alien who is resident of any area with respect to which the Treasury Department restricts or regulates the delivery of checks drawn against funds of the United States or any agency or instrumentality thereof.'
Yet a closer reading of this section makes one wary of placing too much emphasis upon the word 'may.' For reasons we shall discuss, we believe that the lower courts were straining the interpretation of the regulations when they concluded that a corporation could be a P.O.D. beneficiary upon the rather shallow footing of one ambiguous word. We are disposed to give an interpretation to the regulations in accord with that urged by the appellant. We do so upon an analysis of the regulations as a whole rather than relying upon any single section.
The regulations provide for, and carefully distinguish, two basic types of bond registration. one type is designed for use by corporations, trust companies, fiduciaries, and so forth--in general for persons other than 'natural persons.' The regulations allow only a single ownership form for these bonds, which means that on bonds that are issued to corporations only one named owner shall appear, the corporation itself. The corporate owner of a U.S. savings bond may not (or shall not) join another person, natural or not, as a coowner or beneficiary. Section 315.7(b).
A separate type of bond registration is provided for the use of 'natural persons.' Section 315.7(a):
'Subject to any limitations or restrictions contained in these regulations on the right of any person to be named as owner, coowner, or beneficiary, bonds may be registered in the following forms:
'(a) Natural persons.--In the names of natural persons in their own right.
'(1)...
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