Summary
In Miller, funds were deposited with the defendant savings institution in the form of several payable-on-death ("P.O.D.") accounts naming various individuals as the beneficiaries.
Summary of this case from Friedrich v. Bancohio Natl. BankOpinion
No. 81-323
Decided December 23, 1981.
Banks and banking — Payable on death accounts — Ownership rights of depositor's guardian — Liability of savings institution for changing registration of account.
1. The depositor of a payable-on-death (P.O.D.) account retains her rights to ownership and full control of such account during her lifetime. Following a finding of incompetency by the Probate Court, the depositor's ownership rights pass to the legally appointed guardian of her estate, including the right to designate a change in the registration of such account.
2. A savings institution, presented with letters of guardianship and a request to change the registration of a P.O.D. account owned by the ward of the presenting guardian, may substitute that guardian's name on the account without incurring any liability to the former beneficiaries of the account under R.C. 1339.02.
3. A former beneficiary of a P.O.D. account may challenge the action of the savings institution with respect to changing the registration of such account only by complying with the provisions of R.C. 1151.192.
APPEAL from the Court of Appeals for Holmes County.
The proceeding giving rise to this appeal began with an action in the common pleas court brought by plaintiffs-appellants, Elza E. Miller and John W. Baughman, against defendants Clyde Young and his bonding company (Western Surety Company), and the defendants-appellees savings institutions, Peoples Federal Savings Loan Association, First Federal Savings Loan Association and Wayne Savings Loan Association, for damages arising from the wrongful conversion and misapplication of funds deposited in the defendant savings institutions by the late Zora Smith. The funds were certificates of deposit originally denominated "payable on death" (P.O.D.) to plaintiffs as beneficiaries.
At issue are the following certificates of deposit:
An account opened on July 2, 1970, by Peoples Federal Savings Loan Association (Wooster, Ohio) in the principal amount of $5,366.17 in the name of "Zora Smith, Payable on Death to John W. Baughman."
An account opened on July 2, 1970, by First Federal Savings Loan Association of Wooster, Ohio, in the principal amount of $15,000 in the name of "Mrs. Zora Smith, Payable on Death to Elza Miller."
An account opened on September 29, 1970, by Wayne Savings Loan Company (Wooster, Ohio) in the principal amount of $15,000 in the name of "Zora Smith, P.O.D. Elza Miller."
An account opened on January 4, 1971, by Peoples Federal Savings Loan Association in the principal amount of $15,000 in the name of "Zora Smith, P.O.D. to Elza Miller."
The record indicates these certificates of deposit represented renewals of savings certificates, some dating back to the mid-1950's.
In 1974, Zora Smith, then 92, became incompetent by reason of advanced age, and in July of that year, with her consent, the Probate Court appointed Clyde E. Young as guardian of her person and estate. Letters of guardianship duly issued, and Young entered into an indemnity agreement with Western Surety Company. A guardianship inventory was filed by Young in October 1974, listing the aforementioned certificates as payable on death to plaintiffs.
Clyde Young died after the commencement of this action, and E. Maxine Young, executrix of his estate, was duly substituted as party defendant for her husband.
During the months of October and November 1974, and January 1975, Young, accompanied by Mrs. Smith, appeared at the savings institutions, presented his letters of guardianship, and had the registration of the certificates changed to his name, as guardian of Zora Smith, thereby eliminating the plaintiffs as beneficiaries. An amended inventory was filed with the Probate Court in August 1975, listing the changes in payees. In December 1975, Mrs. Smith died, and in the following month the court issued Young letters of administration. The certificates, which had remained on deposit at the savings institutions, were withdrawn and deposited into an administrator's account, as part of the assets of the Smith estate. Thereafter, this action was brought against Young, his bonding company and the savings institutions for the proceeds arising from the certificates.
Under the terms of Zora Smith's will, Clyde Young and members of his family would receive the bulk of the estate, including the savings accounts at issue here. Unless plaintiffs are entitled to relief by judicial decree, they receive nothing.
The trial court granted the savings institutions' motions for summary judgment, and left pending the claims against Clyde Young's executrix and bonding company. Plaintiffs appealed the summary judgments, and the Court of Appeals affirmed.
The cause is before this court upon allowance of a motion to certify the record.
Baran Baran Co., L.P.A., Mr. Edward C. Baran and Mr. John Tarkowsky, for appellants.
Messrs. Logee, Hostetler, Stutzman Broehl and Mr. Morris Stutzman, for appellee Peoples Federal S. L. Assn.
Kauffman, Eberhart, Cicconetti Kennedy Co., L.P.A., and Mr. Charles A. Kennedy, for appellees Wayne S. L. Co. and First Federal S. L. Assn.
This court must determine whether a savings institution is liable to the beneficiaries of a P.O.D. account, when that institution changes the payee of the account at the request of the guardian of the account's legally incompetent owner. Upon due consideration of the rights associated with P.O.D. accounts, and the powers of guardians and savings institutions, we conclude that an institution which in good faith substitutes the name of the guardianship as payee for the originally named beneficiary on a P.O.D. account is not liable to that beneficiary. Therefore, we affirm the Court of Appeals.
As a threshold question, the ownership of P.O.D. accounts during the lifetime of the depositor must be addressed. R.C. 2131.10 and 2131.11 govern creation of P.O.D. accounts in Ohio. R.C. 2131.10 describes the nature of ownership of such accounts:
"A natural person, adult or minor, referred to * * * as the owner, may enter into a written contract with any * * * [savings institution] transacting business in this state, whereby the proceeds of the owner's * * * deposit * * * may be made payable on the death of the owner to another person, referred to * * * as the beneficiary * * *.
"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 * * * 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."
The above quoted statutory language gives the depositor full ownership of a P.O.D. account's funds during her lifetime, whereas the beneficiary's interest does not vest until the owner's death. It follows logically that the depositor is the owner of the account even after a Probate Court declares her legally incompetent.
The guardian appointed to manage the estate of an incompetent may, acting as a fiduciary, exercise all rights of ownership which the ward could have exercised during her lifetime had she not been declared legally incompetent. This power includes the right to designate a change in the registration of P.O.D. accounts and thereby eliminate the former beneficiaries, if that is the best interest of the ward. R.C. 2111.14(B). See, also, 26 Ohio Jurisprudence 2d 444-445, Guardian and Ward, Sections 102 and 103.
Although appellants raised before this court the issue of self dealing on the part of Clyde Young, the trial court left pending appellants' claims against Young's estate. We therefore have no opportunity to determine whether the action of Young in designating a change in the registration of the deposits, apparently at Mrs. Smith's request, was proper under the relevant statutes. See, generally, R.C. Chapters 2109 and 2111.
Having concluded that it is within the powers of a guardian to designate a change in the registration of his ward's P.O.D. account, we may consider the liability of the appellee savings institutions in making the requested changes.
R.C. Chapter 1339 governs liability of savings institutions for actions taken at the request of legal guardians. R.C. 1339.02 states, in part, that an issuer "may treat a fiduciary as having capacity and authority to exercise all said rights of ownership in respect of such securities that are of record in the name of * * * a person in conservation, * * * or of a * * * incompetent person * * *; and such issuer shall be protected in any action taken or suffered by it in reliance upon any instrument showing the appointment of such fiduciary." Under the definitional section, an "issuer" includes savings institutions such as appellees, and "securities" include certificates of deposit such as the ones at issue here. See R.C. 1339.01(C) and (E). In the instant case the savings institutions relied on Young's presentation of his letters of guardianship when complying with his request to change the registration of the P.O.D. accounts. Therefore, they were within their rights under R.C. 1339.02.
Although Young has not been shown to have misapplied the funds at issue here, even assuming arguendo that they were misapplied, R.C. 1339.04 protects "[a] person who in good faith pays or transfers to a fiduciary any money or other property which the fiduciary as such is authorized to receive * * *." Therefore, regardless of whether these accounts were changed in the best interest of Mrs. Smith, the savings institutions can not be liable, unless the institutions did not, in fact, act honestly. No such allegation was sustained at the trial court level.
The appellee savings institutions are also protected from liability here by another statute, R.C. 1151.192. That section establishes a procedure by which persons with adverse claims to deposit accounts may require that institution to recognize their claims. The procedure set forth includes the presentation to the savings institution of a court order restraining any action on the deposit, and the delivery of a bond by the claimant indemnifying the savings institution against any liability, loss or expense it might incur arising from the adverse claim. Appellants here did not comply with these procedural requirements. Therefore, the institutions, by force of that statute, need not recognize the claims.
We conclude that a savings institution, presented with letters of guardianship and a request to change the registration of a P.O.D. account owned by the ward of the presenting guardian, may substitute that guardian's name on the account without incurring any liability to the former beneficiaries. Should the former beneficiaries wish to challenge the action of the savings institutions with respect to changing the registration of such accounts, they must comply with the provisions of R.C. 1151.192.
Accordingly, the judgment of the Court of Appeals is affirmed.
Judgment affirmed.
CELEBREZZE, C.J., W. BROWN, SWEENEY, HOLMES and KRUPANSKY, JJ., concur.
LOCHER, J., concurs in the judgment.