Pricy Ann Jamison v. Society National Bank
| Decision Date | 26 September 1991 |
| Docket Number | 91-LW-1301,58924 |
| Parties | PRICY ANN JAMISON, Plaintiff-Appellant v. SOCIETY NATIONAL BANK, Defendant-Appellee Case |
| Court | Ohio Court of Appeals |
CHARACTER OF PROCEEDING: Civil appeal from Berea Municipal Court Case No. 88-CVH-1677
For plaintiff-appellant: Richard R. Huber, 11 West Church Street Milan, Ohio 44846.
For defendant-appellee: Rosemary DiSanto, Barbara L. Armstrong 900 Park Plaza, Cleveland, Ohio 44114-3516.
JUDGMENT AFFIRMED.
Harold Horton purchased a certificate of deposit from Society National Bank in the amount of $6,647.62. It was designated by Horton to be a payable on death ("P.O.D.") account pursuant to R.C. 2131.10 and the plaintiff, Pricy Ann Jamison, was designated as the beneficiary.
Subsequently, Horton obtained a loan from Society in the amount of $5,000.00 and pledged the C.D. as collateral. He also executed a security agreement and a promissory note in the amount of $5,000.00 payable on demand to Society.
Horton died with the loan still outstanding. After Society was notified of Horton's death, it applied the proceeds of the C.D. to pay off the remaining balance on the principal amount and accrued interest and issued a check to Jamison for the balance.
Jamison refused the check and filed a complaint alleging conversion in the Berea Municipal Court. The matter was tried to the court upon joint stipulations of fact, exhibits, and trial briefs and the court entered judgment in favor of Society. Jamison's timely appeal follows.
Appellant's first assignment of error states:
THE TRIAL COURT ERRED IN RULING THAT A SECURED PARTY'S SECURITY INTEREST IN A P.O.D. CERTIFICATE OF DEPOSIT PLEDGED BY THE LIFE TENANT DURING HIS LIFETIME TO THE SECURED PARTY FOR A LOAN TAKES PRECEDENCE OVER THE BENEFICIARY OF THE ACCOUNT ON THE DEATH OF THE LIFE TENANT.
Jamison asserts that the trial court erred by granting judgment in favor of Society. She contends that her beneficial ownership interest in the payable on death certificate of deposit takes precedence over Society's security interest. We disagree.
The central issue that we face is whether Society had a right to satisfy the outstanding balance owed on Horton's loan from the payable on death certificate of deposit before distributing the certificate of deposit to Jamison. In support of her argument, Jamison relies on In Re Certificates of Deposit Issued by Hocking Valley Bank of Athens Company (1991), 58 Ohio St. 3d 172 and Franke v. Third National Bank and Trust Co. (1986), 31 Ohio App. 3d 189, 309 N.E.2d 955, both of which concern joint and survivorship certificates of deposit.
In Franke, Dora Franke and her son Michael were joint owners of a C.D. with a right to survivorship. Michael had pledged the C.D. as collateral for a loan with the bank before he died. The Court of Appeals of Montgomery County held that Dora, the surviving joint tenant, was entitled to the full amount of the C.D. since the bank's set off was subordinate to the survivor's right of survivorship. Franke (1986), 31 Ohio App. 3d at, syllabus. The Franke court further held that the bank's security interest was extinguished upon the death of the debtor joint tenant. Id.
In Hocking Valley, Norman Orcutt and his wife, Linda, owned six C.D.'s "as joint tenants with right of survivorship". Norman encumbered five of the C.D.'s by signing security agreements and promissory notes with the bank and pledging the C.D.'s as collateral. Norman died prior to the maturity date on the promissory notes.
The Supreme Court of Ohio found for Linda, the joint tenant, affirmed Franke, and stated:
When only one joint tenant with the right of survivorship to a certificate of deposit signs a security agreement and pledges the certificate as collateral to secure his or her loan, and such joint tenant dies before the loan is satisfied, the joint tenant survivor(s) is entitled to the entire amount of the certificate, as the bank's interest is immediately extinguished upon the death of the debtor joint tenant.
In Re Certificates Issued by Hocking Valley Bank of Athens Co. (1991), 58 Ohio St. 3d 172, syllabus.
We find both Franke and Hocking Valley distinguishable with respect to the case at bar inasmuch as there is a critical difference between the rights granted to parties to a P.O.D. account and those granted to a joint and survivorship account.
R.C. 2131.10, which governs a payable on death account, provides in pertinent part:
A natural person. . .may enter into a written contract with any hank.. .whereby the proceeds of the owner's investment share certificate, share account, deposit or stock deposit may be made payable on the death of the owner to another natural person.... In creating such an account, "payable on death" or "payable on the death of" may be abbreviated to "P.O.D.".
Every contract. . .authorized by this section shall be deemed to contain a right on the part of the owner during his lifetime both to withdraw the proceeds of such investment share certificate, share account, deposit, or stock deposit, in whole or in part, as though no beneficiary has been named, and to designate a change in beneficiary. The interest of the beneficiary shall be deemed not to vest until the death of the owner. (Emphasis added.)
Such statute provides the owner of a P.O.D. with full dominion and control over the instrument. The owner of a P.O.D. instrument has the unrestricted right to use the proceeds of the C.D. as though no beneficiary had been named.
No-such similar statutory mandate exists for a co-owner of a joint and survivorship account. In Hocking Valley, the Ohio supreme Court was only concerned with the C.D.'s encumbered by one joint tenant which placed in jeopardy the ownership interest of the other joint tenant who did not participate in the creation of the encumbrance. Such concern is inapposite to the case at bar insofar as Horton, the sole owner, was authorized to encumber his interest and to dispose of the funds in any way he deemed proper. In fact, Horton encumbered his interest in the C.D. and contracted to Society his rights to the C.D. subject to their loan agreement. At that time, the P.O.D. beneficiary had no ownership interest in the C.D.. The rights of Jamison did not vest until Horton's death. However, the rights of the joint tenants in Hocking Valley and Franke, while not fully vested prior to the death of the joint tenant who had encumbered the C.D.'s, were preserved within the context of the tenancy agreement. As a result, we find Hocking Valley and Franke distinguishable and believe that the trial court properly found that Society could satisfy its loan from the C.D. See In Re Estate of Gullett (1987), 36 Ohio Misc. 2d 8, 521 N.E.2d 14.
Appellant's first assignment of error is overruled.
Appellant's second assignment of error states:
THE TRIAL COURT ERRED IN RULING THAT A SECURITY INTEREST IN A NON-NEGOTIABLE, NON-TRANSFERRABLE C.D. WAS AN "INSTRUMENT" UNDER THE UNIFORM COMMERCIAL CODE RATHER THAN A "GENERAL INTANGIBLE" AND THEREFORE A SECURITY INTEREST COULD BE PERFECTED IN SAME WITHOUT REQUISITE FILING IN COUNTY OR STATE OFFICES.
Jamison contends that the trial court erred when it found that the C.D. was an "instrument" rather than a "general intangible". She also argues that the trial court erred when it found that Society had perfected its security interest in Horton's C.D. by taking delivery and retaining possession of the paper in accord with R.C. 1309.24. In so arguing, Jamison maintains that Society did not perfect its security interest in the C.D. by failing to file a financing statement. Such arguments lack merit.
We believe that Horton's C.D. was an "instrument" within sections 1303.01 and 1303.78 of the Revised Code. R.C. 1303.03, which defines the requisite form of a negotiable instrument and C.D., provides in pertinent part:
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