In re McFarland, Bankruptcy No. 2-92-07571. Adv. No. 2-93-0180.
| Decision Date | 22 July 1994 |
| Docket Number | Bankruptcy No. 2-92-07571. Adv. No. 2-93-0180. |
| Citation | 170 BR 613 |
| Parties | In re Phyllis Ann McFARLAND, Debtor. Frederick L. RANSIER, Trustee, Plaintiff, v. Phyllis Ann McFARLAND, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
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Frederick L. Ransier, Trustee, Ransier & Ransier, Columbus, OH, for plaintiff.
Richard T. Ricketts, Ricketts & Onda, L.P.A., Columbus, OH, for defendants.
Robert J. Sidman, Vorys, Sater, Seymour and Pease, Columbus, OH, for Worthington Business Center.
Frederick L. Ransier ("Trustee"), trustee of the chapter 7 bankruptcy estate of Phyllis McFarland ("Debtor"), seeks a declaration of the estate's interest in certain assets, the avoidance of certain transfers to Dan R. McFarland, the Debtor's spouse, as fraudulent under state law, and a denial of the Debtor's discharge.
The Court has jurisdiction in this adversary action under 28 U.S.C. § 1334(b). This is a core proceeding which this bankruptcy judge may hear and determine. See 28 U.S.C. § 157(b)(2). A related adversary action against the Debtor and her non-debtor spouse was filed by Worthington Business Center ("WBC"). The Trustee's action was tried jointly with the WBC action in April of 1994.
Phyllis McFarland filed her bankruptcy primarily to discharge a personal guaranty obligation to WBC for space leased by Anne's Collection, Inc. ("Anne's"). All other scheduled debts either are joint obligations of the Debtor and her husband which apparently are being paid on a current basis or are obligations only of Anne's.
Initially the Trustee seeks a declaration that certain assets, including household goods, a checking account, a certificate of deposit, certain shares in Anne's and Wainaco, and a portion of a tax refund are assets of this bankruptcy estate. The Trustee further seeks a determination that the Debtor had ownership interests in certain real properties prior to the transfer of those ownership interests to her husband in 1991.
As more fully discussed below, the Court finds that the following presumptions and evidentiary issues are relevant to establishing the ownership of property in Ohio where the alleged owners are alive and married to each other.
Prior to August 1991 the Debtor and her husband were titled owners as joint tenants or tenants by the entirety of seven parcels of real property. The Debtor maintains that, even though her name was on the deeds to those properties, she had no ownership interest in them because she did not pay for them. Nor did she make use of the six parcels purchased as investments. Dr. McFarland maintains that his wife's name was on the deeds only to satisfy various lending institutions and not to create any ownership interest in her.
The McFarlands' residence was titled to Dan McFarland and Phyllis McFarland, as tenants by the entirety, until 1991 when the Debtor transferred her interest to her husband. Their prior residence had been titled in both names during the 18 years they lived there. Four condominiums, known as the "Brafferton Properties", were titled jointly to Dan McFarland and Phyllis McFarland from acquisition in 1979 until 1991. Two ranch lots in Montana also were titled jointly from the date of acquisition in 1989 until 1991.
Other than working at Anne's and a later corporation known as Fashion Expo, Inc., the Debtor generally did not work outside the home during her 31 years of marriage. At the time the Brafferton Properties were acquired, the Debtor had not worked outside the home for many years. Therefore, it is not credible that a financial institution would require her name to be on the Brafferton investment property deeds. Because Ohio is one of the few states that still recognizes dower interests, a mortgagee likely would insist that she sign all mortgage deeds, whether or not she was a titled owner. It is not credible, however, that a lending institution would decide for Dr. McFarland how he should title property when payment for the property would come solely from his earnings. Nor would a financial institution be likely to require a tenancy by the entirety deed.
The Debtor and her husband have a long history of owning real estate jointly or as tenants by the entirety. The Court does not believe that mortgagee requirements were the only reasons for such forms of ownership. Further, there was no evidence of the creation of any trust and no reason to impress such a relationship. Accordingly, the Court finds that ownership interests in those properties are as titled prior to August 1991, as reflected in the conveyance language in the deeds. If the Trustee successfully avoids the Debtor's transfers of her interests in those properties to her husband in 1991, her interests will become part of her bankruptcy estate.
The Debtor's initial bankruptcy schedules show no stock ownership. However, she owns 100 shares of Wainaco and 60% of the issued shares of Anne's. She testified that she did not initially list her Anne's stock because she thought it was worthless and she did not list her Wainaco stock because she did not think about it when the schedules were compiled. An initial amendment to her schedules lists the Anne's shares, but not the Wainaco stock.
Regardless of initial nondisclosure or the status of any amendments to her schedules, both the Wainaco and Anne's shares were titled in the Debtor's name at the time of her bankruptcy filing. No reason has been shown to change that presumption of ownership. Therefore, those shares are property of this bankruptcy estate which must be turned over to the Trustee.
The certificate of deposit at issue, in the amount of $150,000, was payable to Dan McFarland or Phyllis McFarland. Because it was not payable "to the order of' Dan or Phyllis McFarland, it was non-negotiable. Ohio Rev.Code § 1303.03(A)(4); UCC § 3-104(1)(d) (1989). The Debtor and her husband maintain that the certificate was purchased by Dr. McFarland with his separate funds and that he had no intention of giving the Debtor any interest in it.
The Trustee asserts that the ownership issue is controlled by case law in Ohio which finds a presumption of a gift when property is purchased by one person and titled in joint names of the purchaser and a family member. Creed v. Lancaster Bank, 1 Ohio St. 1, paragraph 3 of syllabus, (Ohio 1852) and John Deere Indus. Equipment Co. v. Gentile, 9 Ohio App.3d 251, 459 N.E.2d 611 (Ohio Ct.App.1983); see also, Spencer v. Spencer, 87 Ohio App. 539, 89 N.E.2d 496 (Ohio Ct. App.1949).
The Debtor and Dr. McFarland assert that the ownership issue is controlled by case law in Ohio relating to bank accounts, as set forth in In re Estate of Thompson, 66 Ohio St.2d 433, 423 N.E.2d 90 (Ohio 1981). In Thompson, the Ohio Supreme Court held that "a joint and survivorship account belongs, during the lifetime of all parties, to the parties in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent." Thompson, 66 Ohio St.2d, 423 N.E.2d 90 at paragraph 1 of syllabus. Dr. McFarland testified that he never intended to give his wife any interest in the certificate of deposit and that he believed the bank erred in the manner in which the certificate was issued.
Despite the Ohio Supreme Court's explicit limitation of the holding in Thompson to joint and survivorship bank accounts (see, Thompson, 66 Ohio St.2d at 439, 423 N.E.2d 90, n. 1), Thompson has been applied to the issue of ownership of a certificate of deposit. See Kristofik v. Bank One, Akron, N.A., 34 Ohio App.3d 104, 105, 517 N.E.2d 272 (Ohio Ct. App.1986).
The bundle of rights represented by a nonnegotiable certificate of deposit is closer to a bank account than it is to titled personal property. Therefore, the Court holds that, as a matter of Ohio law, the ownership of a non-negotiable certificate of deposit is controlled by Thompson. In order to overcome the presumption established by Thompson, the Trustee must show that Dr. McFarland intended to give the Debtor an interest in the certificate.
The Trustee shows Dr. McFarland's intent by establishing the following facts. The certificate of deposit was titled in the name of Dan or Phyllis McFarland. It was assigned to a bank for possible offset against funds made available to Anne's which the Debtor and her spouse were responsible for repaying. Repayment of that debt was secured in part by a mortgage against the McFarland residence. Finally, an accountant employed by the McFarlands directed the bank in September 1991 to apply "our" certificate of deposit to reduce the mortgage.
The Court finds that the Trustee has shown by the clear and convincing evidence required by Thompson that Dr. McFarland's intent when the certificate of deposit was created was to use it for joint purposes. Specifically, its use was to assist in his wife's business venture. Accordingly, as a matter of Ohio law, the certificate of deposit was owned by both Dr. McFarland and the Debtor, as joint tenants.
The Debtor's bankruptcy schedules initially failed to disclose any interest in bank accounts. When those...
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