Opinion
No. 29513
Decided November 17, 1943.
Executors and administrators — Registered United States savings bonds not subject to administration, when — Bonds payable to designated beneficiary upon registered owner's death.
Ownership of series D United States savings bonds, issued pursuant to the Second Liberty Bond Act, as amended and supplemented, and in such manner and subject to such terms and conditions as were prescribed therefor by the Secretary of the Treasury, is to be determined according to the tenor of such bonds, and where such bonds have been registered in the name of one natural person payable on death to a single designated natural person, upon the death of the first named natural person, they become the property of the named beneficiary and the proceeds of such bonds are not subject to administration in the estate of the first-named natural person. ( Rhorbacker, Exr., v. Citizens Building Assn. Co., 138 Ohio St. 273, approved and followed.)
APPEAL from the Court of Appeals of Cuyahoga county.
This case arose upon the exceptions of Frank DiSanto, one of the heirs at law of Louis DiSanto, deceased, to the inventory filed in decedent's estate. The matter was submitted upon a stipulation of facts to the Probate Court of Cuyahoga county, which court directed the administratrix to exclude from the inventory certain United States savings bonds which had been registered in decedent's name as owner, payable on death to certain beneficiaries named on the face of the bonds.
Louis DiSanto died intestate on November 23, 1941. In decedent's safe deposit box were found seven United States registered discount savings bonds, series D, aggregating $5,500 maturity value. These bonds were issued under the Second Liberty Bond Act, as amended by Section 22 which was added by the Act of February 4, 1935, 49 Stats. at L., 21, Title 31, Section 757 c, U.S. Code, 1940 Ed. (subsequently amended by the Public Debt Act of 1941, Act of February 19, 1941, ch. 7, Section 3, 55 Stats. at L., 7, Title 31, Section 757 c. U.S. Code, 1940 Ed., Supp. I), and circulars and regulations of the Secretary of the Treasury promulgated thereunder.
The offering circular pursuant to which these bonds were issued was Treasury Department circular No. 596, dated December 15, 1938, with first amendment dated March 27, 1940, and second amendment dated February 20, 1941, and provides (paragraph 14):
"All savings bonds issued pursuant to this circular shall be subject to regulations prescribed from time to time by the Secretary of the Treasury."
All the bonds were registered in the name of Mr. Louis DiSanto with one of them payable on death to his widow and each of the remaining six payable on death to a named child.
Treasury Department circular No. 596 provided in part as follows:
" Authorized Forms of Registration.
"8. United States Savings Bonds may be registered (1) in the name of any natural person (that is, an individual) whether an adult or a minor, (2) in the names of two (but not more than two) natural persons as co-owners, (3) in the name of one natural person payable on death to a single designated natural person, (4) in the name of any incorporated or unincorporated body, (5) in the name of a fiduciary, and (6) in the name of the owner or custodian of public funds. Full information as to the authorized forms of registration for United States Savings Bonds will be found in the regulations prescribed from time to time by the Secretary of the Treasury (see paragraph 14). These regulations may be seen at any post office and may be obtained from the Treasury Department, Division of Loans and Currency, Washington, D.C., or from any federal reserve bank."
At the time of the death of Louis DiSanto all of the bonds here involved were registered in the beneficiary form prescribed in subdivision 3 of paragraph 8. supra.
The regulations in force at the time of the death of Louis DiSanto governing the issuance, transfer and ownership of the bonds in question are contained in Treasury Department circular No. 530, fourth revision, dated April 15, 1941, with first amendment dated June 26, 1941. The regulations presently in force are contained in Treasury Department circular No. 530, fifth revision, dated June 1, 1942. The regulations contained in the fourth revision do not differ substantially in any respect here material from the regulations contained in the fifth revision. The regulations applicable to the bonds here in question provided in part in Section 315.12 thereof with respect to bonds registered in beneficiary form (3 Fed. Register, 3128, 5 Fed. Register, 1267, 6 Fed. Register, 2191):
"(a) Payment to registered owner. A savings bond registered in the name of one person, payable on death to a designated beneficiary, for example, 'Henry W. Ash, payable on death to John C. Black,' will be paid to the registered owner during his lifetime upon his properly executed request without regard to the designated beneficiary. If the beneficiary should predecease the registered owner the bond will be paid as though no beneficiary had been named in the registration.
"(b) Reissue during lifetime of registered owner. A savings bond registered in the name of one person payable on death to a designated beneficiary may not be reissued during the lifetime of such beneficiary so as to eliminate his name. If such beneficiary should predecease the registered owner, the bond may, upon appropriate request by the registered owner, and proof of the death of the beneficiary, be reissued in the name of the registered owner alone, or in his name payable on death to a new beneficiary.
"(c) Payment or reissue to beneficiary. If the registered owner dies without having presented and surrendered the bond for payment to a Federal Reserve Bank or the Treasury Department, and is survived by the beneficiary, upon proof of such death and survivorship, the beneficiary will be recognized by the Treasury Department as the sole and absolute owner of the bond, and payment will be made only to him, or, upon appropriate request by the beneficiary the bond may be reissued in his name alone or (if not a minor or under any other legal disability) in his name payable on death to a single designated beneficiary: Provided, however, That if the bond with a properly executed request for payment has actually been received by a Federal Reserve Bank or the Treasury Department, payment of the bond, or check if one has been issued, will be made to the estate of the deceased owner in accordance with the provisions of Section 315.16.
"(d) Payment or reissue after death of the surviving beneficiary. After the death of a surviving beneficiary who became entitled to the bond under the provisions of the next preceding paragraph, the bond will be paid or reissued in accordance with the provisions of Section 315.16, as though the bond were registered in the name of the surviving beneficiary alone. In this case proof of the death of both the registered owner and the beneficiary and of the order in which they died will be required."
In the body of the bond form it is provided:
"This is a United States Savings Bond of Series D, Authorized by the Second Liberty Bond Act, approved September 24, 1917, as amended, and issued pursuant to Treasury Department circular No. 596, dated December 15, 1938, to which reference is made for a statement of the rights of holders, as fully and with the same effect as though herein set forth.
"This bond is not transferable; and, except as provided under said circular, it is payable, at maturity or on earlier redemption, only to the registered owner and upon the presentation and surrender of this bond with the request for payment duly executed on the back hereof, all in accordance with the provisions of said circular and the regulations prescribed from time to time thereunder."
The Probate Court found that the bonds which had been included in the inventory of decedent's estate belonged respectively to the, beneficiaries named in the bonds, and sustained the exceptions. Appeal was taken to the Court of Appeals of Cuyahoga county wherein there was filed and allowed a "Suggestion of interest of the United States of America." The Court of Appeals affirmed the judgment of the Probate Court. The case is here following the allowance of a motion to certify the record.
Messrs. Sindell Sindell and Mr. S. Nadrah, for appellant.
Mr. Harry L. Deibel and Mr. Michael P. O'Brien, for appellees.
Mr. Don C. Miller, United States attorney, Mr. Francis X. Feighan, Mr. Francis M. Shea, Mr. Sidney J. Kaplan, Mr. Martin Norr and Mr. Jerome C. Strumpf, for the United States of America.
We are of the opinion that the controlling principle in this case was settled in the case of Rhorbacker, Exr., v. Citizens Building Assn. Co., 138 Ohio St. 273, 34 N.E.2d 751, 135 A. L. R., 988.
While this writer dissented in that case upon the ground that the then recent decisions of this court in similar cases had been based upon the theory of a contract between the donor and donee rather than upon a contract between the donor and the depositary for the benefit of a third person, the Rhorbacker case must now be accepted as declaring the applicable law in this state, to wit, that the proceeds of a contract made for the benefit of a third party are not subject to administration in the estate of the donor but belong to the person for whose benefit the contract was made. That case involved the ownership of a certificate of deposit issued in the names of L. Floy Walker or Mrs. Sceva Stinebaugh Walker or survivor. There was no contract between donor and donee. There was, however, an executed contract between the donor and the building and loan association for the benefit of a third party. The controversy arose between the executor of the estate of L. Floy Walker, deceased, and Mrs. Sceva Stinebaugh Walker, the survivor. Judgment was entered by the Court of Common. Pleas for the executor, but the Court of Appeals reversed that judgment and, finding such judgment in conflict with the judgment rendered by the Court of Appeals of Cuyahoga county in another case, certified the Rhorbacker case to this court for review and final determination.
There is a close analogy between the facts in the Rhorbacker case and the instant case. In the former case the owner of the fund had entered into a contract with a building and loan association to repay the money to her or another during lifetime or upon the death of the depositor to the named survivor. The only difference is that in the Rhorbacker case a present full interest was created in the donee, whereas in the instant case the present interest created in the donee was that the beneficiary could not be changed while the bond remained outstanding and upon the death of the donor the outstanding bond belonged absolutely to the surviving beneficiary. In the Rhorbacker case, as in the instant case, the issue was and is: Do the proceeds belong to decedent's estate to be there administered or do they belong to the named beneficiary?
In the instant case the United States of America entered into a contract with Louis DiSanto to repay the principal amount of the bond to him or in case of his death to the named beneficiary.
It is the contention of appellant that the treasury regulations which are made a part of the bond contract are merely for the convenience of the treasury in order to facilitate payment and are not sufficient to pass title to the designated beneficiary upon the death of the registered owner. While we agree that one of the purposes of such provisions was to facilitate payment, we are definitely of the opinon that the terms of the contract between the government and the bondholder are sufficient to and do pass title to the named beneficiary upon the death of the registered holder.
Section 22 (a) of the Second Liberty Bond Act, as supplemented by the Act of February 4, 1935, reads in part as follows:
"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, bonds of the United States to be known as 'United States Savings Bonds' * * *. The various issues and series of the savings bonds shall be in such forms, shall be offered in such amounts within the limits of Section 1 of this Act, as amended, and shall be issued in such manner and subject to such terms and conditions consistent with subsections (b) and (c) hereof, and including any restriction on their transfer, as the Secretary of the Treasury may from time to time prescribe." (Italics ours.)
There is nothing in subsections (b) and (c) which affect our question here save that in (b) it is provided that: "Provision may be made for redemption before maturity upon such terms and conditions as the Secretary of the Treasury may prescribe." (See 49 Stats. at L., 21, Title 31, Section 757 c, page 2857, U.S. Code, 1940 Ed., amended after purchase of bonds in question by Public Debt Act of 1941, Act of February 19, 1941, 55 Stats. at L., 7, Title 31, Section 757 c, U.S. Code, 1940 Ed., Supp. I; 3 Fed. Register, 3128, Article X; 5 Fed. Register, 1267, Art. XI; 6 Fed. Register, 2191, Section 315.12 et seq.)
It is argued that because Mr. DiSanto had the right to cash these bonds during his lifetime the proceeds belong to his estate and the beneficiaries may be compelled under process of court to cash these bonds and account for the proceeds to the administratrix of DiSanto's estate. In this connection it is to be observed that while Mr. DiSanto could have cashed these bonds during his lifetime, he could not have changed a beneficiary prior to such beneficiary's death. (6 Fed. Register, 2197, Section 315.12 [ b].) Section 315.17 of the treasury regulations in effect at the time of the death of Mr. DiSanto provided that the ownership of a savings bond or interest therein could be transferred or established through valid judicial proceedings but that no such proceedings should be recognized if they would defeat or impair the rights of survivorship conferred by the regulations. (6 Fed. Register, 2199.)
That a bond is a contract needs no citation of authority. That the terms of the contract will be enforced so long as the same are not illegal is also elementary. The terms of the treasury circulars are specifically made a part of the contract as if they were fully set out in the bond form.
The bonds in question are not transferable. The identity of the owner as well as that of the payee is to be determined according to the tenor of the bond. (Subject to the determination of ownership under Section 315.17, supra.)
While the question of conflicting sovereignty has been raised, it is not here involved. There is no question in this case of a transfer in fraud of creditors or the widow. The widow was not only one of the beneficiaries but was a joint custodian of all the bonds during her husband's lifetime and was present at times when her husband opened the safe deposit box containing the bonds. Under the record in this case the widow is estopped to complain. No question has been raised here as to any liability for gift, estate or inheritance tax on these bonds.
Being of the opinion that each of the bonds in question evidences a contract between the United States of America and the registered owner for the benefit of a third prson, the designated beneficiary, the judgment of the Court of Appeals should be and hereby is affirmed.
Judgment affirmed.
MATTHIAS, HART, ZIMMERMAN and WILLIAMS, JJ., concur.
WEYGANDT, C.J., and BELL, J., dissent.