Gross v. Douglass State Bank

• Decision Date: 20 December 1965
• Docket Number: No. KC-2169.,KC-2169.
• Parties: Angelia Maria GROSS, a Minor, by her mother and next friend, Marion E. Gross, Plaintiff, v. DOUGLASS STATE BANK, Defendant Third-Party Plaintiff, v. Isadore GROSS, Jr., Third-Party Defendant.
• Court: U.S. District Court — District of Kansas

261 F. Supp. 1002

Angelia Maria GROSS, a Minor, by her mother and next friend, Marion E. Gross, Plaintiff, v. DOUGLASS STATE BANK, Defendant Third-Party Plaintiff, v. Isadore GROSS, Jr., Third-Party Defendant.

No. KC-2169.

United States District Court D. Kansas.

December 20, 1965.

James D. Howell (Howell & Howell), Kansas City, Kan., for plaintiff.

Myles C. Stevens and James P. Davis (Stevens & Jackson), Kansas City, Kan., for defendant-third party plaintiff.

James Yates, Kansas City, Kan., for third party defendant.

MEMORANDUM OF DECISION

ARTHUR J. STANLEY, Jr., Chief Judge.

This action was tried to the court on the 12th and 13th of August, 1965.

The plaintiff, Angelia Maria Gross, a minor, is suing by her mother and next friend, Marion R. Gross. See seeks recovery from the bank of funds allegedly in trust for the plaintiff, and allegedly converted by the bank. The bank denies liability and asks for judgment over against Isadore Gross, the plaintiff's father.

In September, 1962, Isadore Gross and his wife, Marion Gross, had savings accounts in seven building and loan associations in Kansas City, Missouri, as joint tenants with the right of survivorship. At that time the accounts totaled approximately ninety-six hundred dollars. Mr. and Mrs. Gross then decided to set up the accounts as trust accounts for their daughter Angelia, in order to provide for her education. At that time, provisions in comparable amounts had been made for each of the other three children of Mr. and Mrs. Gross. To carry out their decisions, the accounts in the various savings and loan associations were changed from joint accounts to accounts for Angelia, with Mr. and Mrs. Gross as joint trustees. These accounts were carried in various ways, including: Isadore H. Gross, Jr., and Marion E. Gross as trustees for Angelia Maria Gross (minor); Isadore H. Gross, Jr. or Marion E. Gross, trustees for Angelia Maria Gross; Mrs. and Mr. or either or survivor, trustee for Angelia; Mrs. and Mr. joint trustees for Angelia; Mr.—Mrs. co-trustees for Angelia. At that time the intention of Mrs. Gross was that the money should not be touched, and that the accounts be allowed to grow and be used exclusively for the education of her daughter. Mr. Gross' intention was somewhat the same; however, as shown by the evidence, he later used one of the passbooks on four occasions as security for loans for his personal benefit. These loans, however, were paid off in full without affecting the accounts. One of the loans was made by the defendant. Mrs. Gross did not know of these uses of the accounts.

At all times concerned, Mr. Gross was maintaining checking accounts with the defendant bank in connection with various business enterprises. These were allowed to become overdrawn to the extent that by January, 1964, the overdrawn amount, combined with the amount Mr. Gross owed the bank on debts, was in excess of $10,000.00.

In the fall of 1963, the interest rate at the defendant bank was increased so that it equaled the rate currently being paid by the savings and loan associations in Missouri. On the urging of the bank, the Grosses decided to transfer the trust accounts to the defendant bank. The bank advised waiting until the first of the year in order to take advantage of the interest payments which would then be made. After the first of the year, the transfer was made, with the defendant handling the mechanics of the transfer, after securing Mr. Gross' signature on the withdrawal authorization in the various passbooks. It was the express intention of the Grosses that the accounts be transferred and set up in the same manner in which they were being carried in Missouri — i. e., with the Grosses as trustees for Angelia Maria, and that the accounts would remain trust accounts for her. Because of their long association with the bank, the Grosses relied on the bank to so set up the account when the funds were received.

The funds were all received at the bank by January 22, 1964. The total amount was $9,691.11. The bank did not set up the trust account, but instead, placed the money into an "accounts receivable" account. On that same day, $329.29 was applied against Mr. Gross' overdrafts. Then on March 4, 1964, the rest of the money was applied to the debts owed by Mr. Gross to the bank. This was done without the knowledge or consent of Mr. or Mrs. Gross. The bank, in so doing, was not willfully acting to the detriment of the plaintiff's interests. While it acted without authority, its acts were not fraudulent or in wanton disregard of the rights of the plaintiff.

On March 5, 1962, Mr. Gross was notified of the bank's action. He objected at that time that the money was not his, but the bank refused to reconsider its action.

I find that when the bank took its action, it had actual knowledge of the trust nature of the funds involved. The bank was led by the prior actions of Mr. Gross to believe that he would revoke the trust, if he had that power. However, at the time the action was taken, Mr. Gross had as yet done nothing to indicate that the trust was presently revoked.

The law applicable to this case is not clearly defined. The first issue is, which state's law applies. The facts giving rise to this cause of action stem from the attempt to establish a trust on the transfer of the funds to the defendant bank in Kansas. Thus, Kansas law will be applied to determine the effect and validity of any such trust. However, it is necessary to look at Missouri law, because if, under that law these funds were in an irrevocable trust, their nature could not be changed merely because of the transfer to Kansas.

The nature of the trust, as it was set up in Missouri, would appear to be closely similar to a tentative or "Totten" trust. See In re Totten, 179 N.Y. 112, 71 N.E. 748, 70 L.R.A. 711 (1904). I have found no Missouri cases which have passed upon the validity or effect of these trusts in Missouri. There is a Missouri statute which recognizes the situation and seems to validate a savings deposit trust; however, the statute only makes the trust valid at the time of death of the settlor and is for the protection of the holder of the funds, to allow him to distribute the money to the beneficiary, without fear of liability. See V.A.M.S. § 364.240. In view of my disposition of this case—that plaintiff is entitled to the funds under Kansas law—I will pass this point without deciding what the Missouri courts would hold. As stated above, Missouri law would affect this case only in the event of a finding of irrevocability of the trusts, and then the effect could only be in the plaintiff's favor. Since the plaintiff is to recover anyway, the decision of this close, undecided question of Missouri law is unnecessary to the case at bar.

Coming, then, to Kansas law, the first question presented is whether there was a valid trust. Kansas, like Missouri, has not passed upon the specific question of Totten trusts. See Comment, 9 Kan.L. Rev. 46 (1960). The Kansas Supreme Court has stated the elements of proving the execution of a valid trust to be: 1) a declaration and intention to establish a trust; 2) a transfer of property; 3) a definite corpus; 4) a requirement to hold the money as trustee. See Shumway v. Shumway, 141 Kan. 835, 44 P.2d 247 (1935). In the case at bar, each of these elements was established. There was a definite corpus, which was transferred to be held in a trust account, and the requisite intention to establish a trust was present. The Shumway case also stands for the proposition that the settlor can make himself the trustee, as was done in the instant case.

Kansas has recognized that a trust may be valid, even though it is revocable. In re Estate of Morrison, 189 Kan. 704, 371 P.2d 171 (1962); see Comment, 11 Kan.L.Rev. 375 (1963). Thus, even though the Kansas Supreme Court has not been called upon to consider a trust in a savings account, as in the present case, it appears that under Kansas law, there is here a valid trust.

The second issue is whether the trust in this case was revocable or irrevocable. The trust, as stated above, is in the nature of what has been recognized in other states to be a revocable trust. This is true, particularly because of the difficulty of enforcing a holding to the contrary. However, those cases typically arise after the death of the settlor, and the finding of revocability is a presumption in absence of any other evidence of the settlor's intention. The governing factor, as in the case of all trusts, is the intention of the settlor. Thus, the settlor's intention may be established by the evidence. The evidence in the case at bar establishes that there were joint settlors. Mrs. Gross' intention was that the trust was to be irrevocable. From the conduct of Mr. Gross' it appears that his intention was that the trust was to be revocable. (Even though he states that he considered it irrevocable, he did use it as a security on a loan, impliedly admitting that he felt he had the power to revoke.) I have found no cases which consider the effect of a differing intention on the part of joint settlors. Kansas law offers little help.

There is a rule of law in Kansas that where there is a voluntary trust of personal property, if there is no power to revoke reserved in the trust agreement, it cannot be revoked without the consent of the beneficiary. Diller v. Kilgore, 135 Kan. 200, 9 P.2d 643 (1932). However, if Kansas does recognize the Totten trust, it seems likely that it will accept the doctrine in its entirety, including the revocability feature. Thus, the rule of the Kilgore case would not be applicable.

Assuming that Kansas would follow the rule of the Kilgore case, the trust in question here would be irrevocable and the plaintiff would be entitled to recover. However, if Kansas adopts the Totten trust doctrine in toto, the trust would be revocable. Without deciding the question, I believe that the plaintiff is entitled to...