Maryland National Bank v. Pearce

KARWACKI, Judge. This case concerns the duty of a bank under Maryland Code (1974, 1989 Repl.Vol.), § 11-603 of the Courts and Judicial Proceedings Article, to impound funds held in a joint account of a husband and wife when an attachment is laid in its hands by a judgment creditor of the husband only. At the time the garnishment was initiated, § 11-603, which was enacted by Ch. 818 of the Acts of 1989, provided: “(a) Spousal property.—(1) Except as provided in paragraph (2) of this subsection, a garnishment against property held jointly by husband and wife, in a bank, trust ⁶⁰⁴ company, credit union, savings bank, or savings and loan association or any of their affiliates or subsidiaries is not valid unless both owners of the property are judgment debtors. (2) Paragraph (1) of this subsection does not apply unless the property is held in an account that was established as a joint account prior to the date of the entry of judgment giving rise to the garnishment.

(b) Property held in trust.—A garnishment against property held in a bank, trust company, credit union, savings bank, or savings and loan association, or any of their affiliates or subsidiaries, by one party in trust for that party and another party or parties, is not valid unless all of the parties are judgment debtors. (c) Joint Accounts.—(1) If property held jointly in an account in a bank, trust company, credit union, savings bank, or savings and loan association, or any of their affiliates or subsidiaries, is garnished, and less than all of the persons named on the account are the judgment debtors, the garnishee may pay into the court from which the writ of garnishment has been issued the lesser of the amount of the judgment or the amount held in the .account. (2) If the garnishee makes payment into the court as provided under paragraph (1) of this subsection, the garnishee may not be held liable to the judgment creditor or to any person named on the account for wrongful dishon- or or for any other claim relating to the garnishment.” 1 ⁶⁰⁵ I. In September of 1979, Ruth Ellen Pearce, the appellee, was awarded a $113,500 judgment against John G. Micka in the Circuit Court for Howard County as damages resulting from his legal malpractice. $96,000 of the judgment was for compensatory damages and $17,500 was awarded in punitive damages. See Pearce v. Micka, 62 Md.App. 265 , 489 A.2d 48 (1985).

Micka did not have malpractice liability insurance to cover the judgment and has avoided any substantial payment of the judgment up to this point. 2 On January 15, 1990, Micka and his wife, Paula, sold their home at 333 Frostwork Road in Columbia, Maryland for $215,251. They purchased the home in 1976 and held it as tenants by the entireties. The couple received a net settlement of $108,130 which was dispersed in two checks. The first check was drawn to Paula Micka and deposited in her account at Provident Bank.

The balance was paid by a second check for $53,065.35 drawn to John G. and Paula Micka. They opened a new account with Maryland National ⁶⁰⁶ Bank, the appellant, on January 17, 1990, and deposited the funds there. At trial, Mr. Micka testified: “Well I, I had gone to Provident, I had asked Provident if they could, if they had an account that could be held by husband and wife, subject to withdraw [sic] by either, that on the death of one the balance went to the survivor, and that because it was held by husband and wife couldn’t be attached because there was a judgment against me. And I found that that wasn’t possible at Provident— MR.

KERR: Object, move to strike. THE COURT: Overruled. “A. So I went to Maryland National, which was right down the street. At Maryland National, I found that that was possible, that they had an account that fulfilled my requirements and my requirements were from my prior understanding. “Q. And so those were the same requirements you just enumerated for Provident? Correct? “A. Yes sir. “Q. That is, held jointly by you and your wife? “A. Yes sir. “Q. With the right of survivorship, death of either one of you the balance would be paid— “A. The balance, yes sir. “Q. And that it would not be attachable for the debts of any one of you? “A. Yes sir.” The agreement which the Mickas signed when opening the account at Maryland National provided in pertinent part: “The bank is authorized to rely on any one of the signatures below for transacting business on this account.

If this account has multiple owners: (1) the account shall be considered held jointly by each owner in trust for one another; (2) each owner shall be fully liable for all obligations arising under the terms of the account; and ⁶⁰⁷ (3) any balance in the account at the death of any owner shall belong to the surviving owner(s).” The signature card containing that agreement was signed by John G. and Paula Micka under the declaration: “JOINT ACCOUNT—SUBJECT TO THE RIGHT OF EACH OWNER TO WITHDRAW.” The garnishment of that Maryland National account is the subject of this appeal. On June 18, 1990, Ruth Pearce filed a Request for A Writ of Garnishment with the Clerk of Court for Howard County, seeking garnishment of the Maryland National account. The writ directed Maryland National to hold “[a]ny [accounts on which Judgment Debtor’s name appears, including account No. 960-126-100” and to file a written answer within 30 days of service. The Writ of Garnishment was served on June 20, 1990.

On August 2, 1990, Maryland National filed an answer, stating: “It confesses that it holds assets of the defendant consisting of an interest in a joint deposit account, however, the joint nature of this account precludes garnishment for the satisfaction of the judgment entered against the defendant in this case.” Pearce filed a response on August 7, 1990, contesting that answer. At the time the writ was served on Maryland National, the Mickas’ account balance was $33,237.79. The Mickas continued to have access to the funds which were used for household expenses and tuition for their son until July 10, 1991, when Maryland National filed an amended answer where it stated: “It confesses that it holds assets of the defendant in an account owned by two (2) or more persons, one (1) or more of whom but fewer than all of whom, are judgment debtors. Garnishee is holding assets consisting of money market account no. 0960126100 with a balance of $8,636.45, pending further order of the Court.” ⁶⁰⁸ Pursuant to Maryland Rule 2-645(g), the case came to trial on January 2, 1992, before Judge Raymond J. Kane, Jr., who ruled that the Mickas’ account was a “spousal account,” 3 under § ll-603(a) of the Courts and Judicial Proceedings Article.

The court agreed with Pearce that because her judgment against John G. Micka preceded the opening of the Mickas’ account at Maryland National, the account was subject to garnishment, even though Pearce was a judgment creditor of only one of the account owners. The court entered judgment in favor of Pearce and against Maryland National for $33,237.79, the amount in the Mickas’ account the day the bank was served with the Writ of Garnishment, plus $667.96 in interest that accrued on that principle sum through July 23, 1990, when the account reached its highest balance. Maryland National appealed to the Court of Special Appeals. We issued our writ of certiorari prior to consideration of the case by the intermediate appellate court.

On appeal, Maryland National Bank argues two theories for reversal. First, that the Mickas opened the Maryland National account with monies held as tenants by the entirety, and therefore, the account could not be attached or ⁶⁰⁹ garnished by a creditor of only one spouse. Second, that the Mickas’ account was a jointly owned account, which each held in trust for the other, protected from garnishment for the individual debt of either by § ll-603(b) of the Courts and Judicial Proceedings Article. It will not be necessary for us to address Maryland National’s first argument since we agree with its second contention and shall reverse.

II

A. The treatment of multi-party bank accounts in trust form has long been a matter addressed by the common law. In Milholland v. Whalen, 89 Md. 212 , 43 A. 43 (1899), our predecessors delivered the seminal decision on the treatment of such accounts. In that case, Miss Elizabeth O’Neill opened a bank account at the Metropolitan Savings Bank in April, 1895. The pass-book included the language: “Metropolitan Savings Bank, in account with Miss Elizabeth O’Neill.

In trust for herself and Mrs. Mary Whalen, widow, joint owners, subject to the order of either; the balance at the death of either to belong to the survivor.” Id. at 213 , 43 A. at 43 . Miss O’Neill retained the passbook in her possession. At Miss O’Neill’s death, both her executor, Charles W. Milholland, and Mrs. Whalen claimed the account balance. The trial court awarded the funds to the beneficiary of the trust as against the estate.

The estate appealed. The Court held that the declaration in the account was sufficient to create a trust: “In Maryland it is not requisite that the cestui que trust should be notified of the declaration or establishment of the trust. It is the donor’s act which originates the trust, and it is the intention with which he does the act that is material. The entry, unexplained, is a sufficient declaration of trust, because it indicates an intention to establish a trust; but this may be rebutted.

Possession by the ⁶¹⁰ depositor of the bank-book in no way detracts from the force of the entry; because it is a possession by the trustee and does not denote that no beneficial interest had been given to the cestui que trust. If the delivery of the money to a bank to be placed to the credit of the depositor in trust for another, and the declaration of the trust, as evidenced by the entry made pursuant to the settlor’s instructions, constitute and evidence a valid trust, then no act of the depositor in subsequently withdrawing the money can affect the rights of the cestui que trust, unless the power to withdraw be reserved.” Id. at 216 , 43 A. at 44 (citations omitted). The Court continued: “Without multiplying illustrations, or overburdening this opinion with further references, those just given suffice to show that such a deposit as we are now dealing with, constitutes a valid declaration of trust, in the absence of contravening proof; and that when a trust is thus created the rights of the beneficiary become fixed, even though the settlor retains the bank-book in his possession. Nor does the circumstance that the depositor makes himself a beneficiary jointly with another, prevent the trust from attaching to the fund.

A trust is not rendered void by the appointment of a beneficiary as trustee.” Id. at 218 , 43 A. at 45 . 4 This Court has consistently applied Milholland when dealing with joint bank accounts in trust form. See, e.g., ⁶¹¹ Arbaugh v. Hook, 254 Md. 146, 150-51 , 254 A.2d 187, 189-90 (1969) (estate rebutted presumption that decedent’s landlady had right of survivorship in joint account when account language expressed survivorship by evidence that decedent intended joint account to create special trust for definite and limited purpose terminating at his death); Shirk v. Suburban Trust Co., 248 Md. 114, 118 , 235 A.2d 549, 552 (1967) (joint owner’s action to recover balance of joint accounts held in trust for her and another with survivorship rights failed when defendant bank rebutted presumption with evidence that decedent intended change of ownership for convenience prior to death, not as gift); Wenger v. Rosinsky, 232 Md. 43, 50 , 192 A.2d 82, 87 (1963) (burden shifts from executrix to defendant joint owner to show creation of account was fair, reasonable and provident where executrix adduced that trust account with survivor-ship rights was created at time when defendant had confidential relationship with decedent); Nicholas v. Owrutsky, 230 Md. 60, 65 , 185 A.2d 498, 500-01 (1962) (in action between guardian and executor to determine ownership of account, absent clear and convincing evidence of donor’s intention to establish trust, such as “in trust,” the usual badge of intention, executor entitled to fund); Kuhl v. Reese, 220 Md. 459, 460 , 154 A.2d 712, 713 (1959) (executor rebutted presumption of trust account with right of surviv ⁶¹² orship by evidence that account was created as matter of convenience to donor in ill health with no intention to create trust in favor of joint owner); Blair v. Haas, 215 Md. 105, 115 , 137 A.2d 145, 150 (1957) (executor suing to recover funds withdrawn from joint bank account held in trust by two parties for each other with survivorship rights failed to rebut presumption of sufficient declaration of trust); Shook v. Shook, 213 Md. 603, 607 , 132 A.2d 460, 462 (1957) (brother and sister who sued joint owner, brother, named on trust account who took remaining balance at death of donor successfully rebutted presumption of valid trust with evidence that account was opened for convenience of father who intended balance to be divided among children); Bierau v. Bohemian Bldg., Loan & Savings Ass’n, 205 Md. 456, 461-62 , 109 A.2d 120, 123 (1954) (in action by executor for declaration of status of fund, court properly upheld valid trust where trust language was used and parol evidence supported donor’s intent); Whittington v. Whittington, 205 Md. 1, 8-9 , 106 A.2d 72, 75 (1954) (widow failed to rebut presumption of trust in accounts created by deceased husband in trust for himself and his sons as joint owners, subject to withdrawal of either, with survivorship rights, where passbooks used trust language, signature cards did not, but bank officer testified to decedent’s intentions); Hancock v. Savings Bank of Baltimore, 199 Md. 163, 170 , 85 A.2d 770, 772 (1952) (where surviving joint owner in confidential relationship with decedent shows creation of joint account was fair and reasonable and executor failed to show contrary intent of decedent, valid trust will be found); Bollack v. Bollack, 169 Md. 407, 415-16 , 182 A. 317, 320 (1935) (in action by children of decedent’s pre-deceased son against estate and decedent’s children to invalidate trust accounts opened by decedent with the children as joint accounts with survivorship rights, plaintiffs failed to meet showing of confidential relationship in order to shift burden of proof to defendants or to rebut resumption of valid trust); Ghingher v. Fanseen, 166 Md. 519, 528 , 172 A. 75, 79 (1934) (in action by jointly owned account holder against ⁶¹³ bank commissioner to enforce set-off of plaintiffs individual bank liability against balance of account owned jointly in trust with wife, no set-off was permitted because plaintiffs interest in account that of a trustee and may not be used to set-off claim of bank against him personally); Kozlowska v. Napierkowski, 165 Md. 620, 628 , 170 A. 198 , 196 (1934) (in action by boyfriend to recover from daughter of deceased girlfriend and executor balance of account in name of girlfriend to which boyfriend had made initial deposit, plaintiff failed to present sufficient evidence to show intention that girlfriend should hold account in trust for her own and boyfriend’s use until marriage, and thereafter by the entirety); Foschia v. Foschia, 158 Md. 69, 71 , 148 A. 121, 122 (1930) (in action by widow against administratrix and bank to recover gift of balance in joint account held in trust by decedent and brother, subject to the order of either with survivorship rights, court improperly sustained demurrer despite allegation that decedent did not intend to have account balance pass to brother, joint owner named on account, and intended balance as gift to wife); Sturgis v. Citizen’s National Bank, 152 Md. 654, 658-59 , 137 A. 378, 380 (1927) (in suit by widow to annul gift by husband to grandnieces by means of a trust account with survivorship rights by alleging improper trust form and fraud on her marital rights, plaintiff failed to rebut presumption of valid trust and failed to show fraud on her marital rights); Schaefer v. Spear, 148 Md. 620, 625 , 129 A. 898, 899 (1925) (in action by executor against joint owner of account opened by decedent in trust for herself and defendant as joint owners, subject to the order of either, with survivorship rights, contravening evidence prevented adoption of view that irrevocable trust was intended); Gimbel v. Gimbel, 148 Md. 182, 185 , 128 A. 891, 893 (1925) (donor who created joint accounts in trust for herself and individual adult children, subject to the order of both, with survivorship rights, successfully rebutted presumption of valid trust enabling her to access accounts without signature of child); Coburn v. Shilling, 138 Md. 177, 197-98 , 113 A. 761, 768-69 (1921) (in ⁶¹⁴ interpleader action between surviving joint owner of trust account and estate to determine ownership of fund, presumption in favor of valid trust rebutted); Mathias v. Fowler, 124 Md. 655, 661-667 , 93 A. 298, 301-02 (1915) (in interpleader action brought by bank against claimants to joint bank account and administrator to determine ownership of joint account between donor and joint owner with survivorship rights, court held that absent “trust” language in account agreement or expressed intent of donor, trust will not be imposed); Baker v. Baker, 123 Md. 32, 42 , 90 A. 776, 779-80 (1914) (administrator in suit to recover proceeds of account owned jointly by husband and wife in trust for one another with right of survivorship with residue to pass to children on survivor’s death failed to rebut presumption of valid trust where appropriate trust language was used to open account); Mulfinger v. Mulfinger, 114 Md. 463, 467-69 , 79 A. 1089, 1090 (1911) (in suit by grandmother-donor who opened account in trust for herself and her granddaughter, as joint owners, subject to order of either, with survivorship rights, absent contravening evidence court properly found valid trust, granddaughter could withdraw funds at will, and was entitled to balance at death of grandmother); Littig v. Mount Calvary Church, 101 Md. 494, 495 , 61 A. 635, 635-36 (1905) (in action by executor to recover balance of bank account for estate, donor’s creation of account in trust for church was sufficient declaration to create trust in favor of church at her death). The Court first addressed the garnishment of a joint bank account in trust form in Fairfax v. Savings Bank of Baltimore, 175 Md. 136 , 199 A. 872 (1938). In that case, the judgment-creditor, Fairfax, attempted to garnish a Savings Bank of Baltimore account owned jointly by the judgment-debtor, Brazier, and his wife.

The account agreement described the account as: “Howard E. Brazier, in trust for self and Nellie M. Brazier, joint owners, subject to the order of either, balance at the death of either to belong to the survivor." Id. at 138 , 199 A. at 874 . The initial deposit in that account was the residue of a similarly worded trust ⁶¹⁵ account held jointly by Brazier and his mother which passed to Brazier upon her death. The Braziers later deposited into the account the proceeds of a mortgage on investment property which they held as tenants by the entireties. Fairfax attempted to garnish the account to satisfy a judgment awarded in a tort action arising from an automobile accident where Mr. Brazier’s negligence resulted in Fairfax’s injuries.

The Court held that Fairfax could not reach the account because Brazier’s ownership was contingent on his surviving his wife. Judge Parke explained for the Court: “The debtor beneficiary, therefore, has, during the joint lives of himself and wife the contingent right of survivor-ship in the trust fund; and the use or power of withdrawal in common with his wife, which either may exercise independently of the other. By the plain language of the declaration of trust the interest of the husband in the corpus of the trust is contingent upon his survival of his wife. So, the interest is uncertain and contingent in the sense that none of the deposit or trust may ever become due and payable to the husband.

Such an interest is not subject to attachment as it is not within the scope of [Art. 9], Section 10.” 5 Id. at 141 , 199 A. at 875 . The Court continued: “It is apparent that if the husband had died after the attachment was issued, the judgment creditor would have no right against the funds or corpus, and the wife would receive, use, and enjoy her absolute estate in severalty in all of the personalty. The attaching creditor could not compel the husband as beneficiary to deprive the other ⁶¹⁶ cestui que trust of the benefit of her right of survivor-ship by a present appropriation of the whole or any part of the trust fund so held for their benefit. A valid trust may not be diverted from its uses by attachment.

The reason is that rights of the husband as a cestui que trust are determined by the terms of the deed of trust in which the equitable interest of the husband is not several, and may not be made or become several in the husband except if and when so made conformably with the terms of the declaration of trust. Since no event has occurred nor any power been exercised, within the contemplation of the trust, to make either the depositary or the husband as fiduciary liable as debtor to the husband personally in any amount, there are no ascertainable property rights or credits subject to the writs of attachment laid in the hands of the two garnishees.” Id. at 142-43 , 199 A. at 875-76 (citations omitted). This Court has subsequently cited Fairfax as the rule governing garnishment of accounts and other property where the judgment debtor has a contingent interest. In Hopkins Place Savings Bank v. Holzer, 175 Md. 481 , 2 A.2d 639 (1938) a trust account was established with the following provision: “John H. Holzer, in trust for himself and Elizabeth Holzer, joint owners, subject to the order of either, the balance at the death of either to belong to survivor.” Id. at 483 , 2 A.2d at 640 .

At a later date, John Holzer borrowed funds from the bank without his wife’s knowledge and deposited the proceeds in the trust account. He pledged the trust account as collateral and deposited the passbook with the bank. The bank charged the trust account for interest payments. It was not until after her husband’s death when she encountered difficulty in withdrawing funds from the account that Mrs. Holzer discovered the loan and pledge of the bank account.

She sought to recover the entire balance of the trust account, including that portion collateralized to secure her husband’s note. Judgment was granted in her favor