Potts v. Emerick

Rodowsky, J., delivered the opinion of the Court. This contest over joint bank account funds, between the estate of the deceased depositor and the designated account survivor, has a novel feature. Some years after the trust accounts were established, the beneficiary of the trust accounts promised the settlor to use the funds to be acquired by survivorship for purposes specified in the settlor’s will. The beneficiary now repudiates that promise.

We shall hold that the settlor’s testamentary estate is entitled to relief by way of a constructive trust. Rose H. Timbrook (Timbrook), a widow of Cumberland, Allegany County, died there on July 24,1979, at age 67. She left a will dated July 13, 1979. Her personal representative is her cousin, Mary O. Emerick (Emerick), the appellee.

Timbrook had a married sister, the appellant, Irene E. Potts (Potts). Funds on deposit in three joint accounts established by Timbrook were paid by the depositories after Timbrook’s death to Potts, as survivor. Emerick sued Potts for part of the funds and obtained judgment below. One of the three accounts was a savings account which Timbrook had maintained with First National Bank and Trust Company of Western Maryland.

Potts’ name was added * 1 to the account on August 3, 1976, when the account ⁴⁹⁷ balance was $26,386.23. Timbrook also had a checking account at that bank. The same day Timbrook arranged for Potts to be authorized to draw against the checking account. That account’s signature card states that "the undersigned, hereby agree to, and do give, each to the other, a joint ownership in all monies now on deposit or at any time hereafter deposited by us or for us ... in our account with [the bank] payable to either of us, or to the survivor.” Because the checking account was not in trust form, the trial court held the funds on deposit in it did not pass to Potts by survivorship.* 2 The third account was with First Peoples Community Federal Credit Union.

On July 19, 1977, Potts was designated a joint owner of this account, which was in trust form and subject only to Timbrook’s order. Because our decision would not be affected were the checking account a trust form of account, we shall consider all of the accounts to have been in a form sufficient to pass sole ownership of the funds to Potts on Timbrook’s death, and shall not distinguish between them. By an unattested paper writing in Timbrook’s own hand, dated October 3,1977, Timbrook wrote that she was making out her will. In relevant part the paper reads: I want my brother Ralph Spera to have $2000 my brother Sebastain [sic] Spera $1000 and my niece Janet Currence $2000 that is provided there is enough money left in the bank.

I may have to use my money in case of sickness or for personal use. Every thing I own is in my sister’s name too Irene E. Potts. ⁴⁹⁸ Timbrook had terminal cancer. She had returned to her home after having been released from the hospital. Timbrook asked Emerick, who was employed by a Cumberland attorney, to have the lawyer see her. 3 Timbrook met with the attorney at her home on July 10, 1979, with Emerick and Potts present.

Counsel was shown the October 3,1977 writing, and he reviewed the proposed bequests with Timbrook. He asked about the value of the estate. Timbrook went over the amounts of money she had in the various accounts. She asked to have a new will prepared.

The attorney testified that on that occasion Potts said "she fully understood her sister’s intentions, that she would pay all of the bequests and the expenses and the gifts from the funds in the joint accounts.” At that meeting Timbrook also produced about 100 government savings bonds which counsel advised should be cashed. Execution of Timbrook’s will took place at her home on July 13. Again present were the attorney, Potts and Emerick. Timbrook stated that she had cashed the savings bonds, that the proceeds amounted to approximately $5,000, and that the cash had been deposited in the savings account. 4 The lawyer handed the ribbon copy of the proposed will to Timbrook, and furnished copies of it to Potts and Emerick.

He then read the will aloud section by section and explained the various provisions. Payment by the personal representative of debts and funeral expenses was directed. Monetary bequests to the brothers, to a niece and to Emerick aggregated $5,500. Timbrook devised her undivided one-fourth interest in her home equally to her two brothers and to Potts.

The residue was given to Potts. Taxes were directed to be paid from the residue. Emerick was appointed personal representative. Item SIXTH provided: I am presently the owner of a checking account and a savings account with the First National Bank ⁴⁹⁹ and Trust Company of Western Maryland, as well as a savings account with the First Peoples Community Federal Credit Union (formerly the Celanese Federal Credit Union), upon which I have placed my sister’s name, Irene E. Potts, on each account, and it is my desire and request that my said sister use these funds to pay all of my just debts, funeral expenses, taxes, costs and expenses in connection with the administration of my estate and all of the monetary bequests and residuary, bequest heretofore set forth, which my said sister fully understands and has agreed to use the said accounts for this purpose. [Emphasis added.] There was some discussion concerning this provision.

Counsel testified that "Mrs. Potts again reaffirmed that she would use the money to pay Mrs. Timbrook’s bills, her expenses, her bequests, and all of the gifts to, her brothers and the people who she left money to.” Timbrook executed the will, which was witnessed by Potts and the attorney. Following execution of the will, the attorney testified that Potts asked him whether her brothers could take the money after she had paid the expenses and gifts, to which counsel replied that it would not be possible in light of the residuary clause. 5 After Timbrook’s death, Potts withdrew all of the funds in the savings account ($35,694.32), in the checking account ($2,780.88) and in the credit union account ($5,905.34). She paid the funeral bill of $1,693 and an additional $97.97 for various utility bills and a grave marker. Potts then consulted her present counsel.

Based on his advice she filed claims in the Timbrook estate for the above expenditures and refused to pay any further sums to or on behalf of the estate. The personal representative then brought the instant action in the Circuit Court for Allegany County in equity. ⁵⁰⁰ An October 29, 1979 inventory of Timbrook’s estate (which did not at that time schedule the joint account funds) listed the interest in the home at $1,625, tangible personal property of $1,950 and cash of $1,535.79. After the payment of court costs and a banking service charge, the estate cash at time of trial was $1,435.54. The amount needed for monetary bequests, inheritance taxes and claims against the estate was $8,288.20 so that the estate cash deficit was $6,852.66.

The chancellor, in a written opinion, concluded as follows: Mrs. Potts accepted the bank accounts for the first time after her sister’s death with the previously expressed understanding that she was to apply them for the purposes expressed in the will and retain the balance for herself. She cannot in good conscience be permitted to agree to that express intention while Mrs. Timbrook was alive and capable of changing the accounts under her control and then disavow the agreement after the death of her benefactor. It is true that intention when the instruments were created is critical, but that intention may be established by parol, or by will, or other documents establishing the true intent of the original owner. See Bauer v. Harmon, 161 Md. 131 , (1931), Shook v. Shook, 213 Md. 603 , (1957).

The decree ordered Potts to pay forthwith to the personal representative the sum of $6,852.66 together with interest at the rate of 6% from July 24, 1979, and to pay to the personal representative "such further sum, if any, necessary to pay the remaining costs of administration.” Potts appealed to the Court of Special Appeals and we granted certiorari prior to consideration of the case by the intermediate appellate court. It is Potts’ position that ownership of the funds in the joint accounts passed to her absolutely by survivorship. In essence she asserts (1) that the terms of the bank account trusts were ⁵⁰¹ fixed as of the date of their creation, in accordance with Timbrook’s intent at that time; and (2) that any attempt thereafter to alter the trust terms, or to impose a further trust on her beneficial interests, failed, because Timbrook’s power to alter the trusts was limited to the power to revoke them pro tanto by inter vivos withdrawal of the funds on deposit, and this did not occur. 6 Emerick’s analysis is that a modification of the terms of the joint account trusts was effected on July 13, 1979, by way of a declaration by Timbrook which was assented to by the only beneficiary, Potts. Alternatively, Emerick argues that Potts is estopped from relying on the presumption that Timbrook intended to create trusts at the time the joint accounts were established.

The chancellor seems to have concluded that Timbrook did not intend to create trusts for Potts when Timbrook caused Potts’ name to be added to the accounts in 1976 and 1977. However, we need not, in this case, determine whether the evidence supports that conclusion. We may assume, arguendo, that Potts acquired the ownership of the account funds by survivorship. But the opinion of the trial court clearly reflects a finding, which is fully supported by the evidence, that Timbrook’s intention, at least at the time when her will was prepared and executed, and up until her death, was that the trust account funds be used for the purposes stated in that will.

The chancellor further found that Potts promised so to use the funds. As the trial judge correctly observed, Potts "cannot in good conscience be permitted to agree to [Timbrook’s] express intention while Mrs. Timbrook was alive and capable of changing the accounts under her control and then disavow the agreement after the death of her benefactor.” These findings support the imposition of a constructive trust for the benefit of Timbrook’s estate on the theory of unjust enrichment. ⁵⁰² Were Potts to have obtained ownership of the funds from Timbrook under the latter’s will, or by intestacy, this case would fall expressly within the rule set forth in § 186 of the Restatement of Restitution (1937): (1) Where a testator devises or bequeaths property to a person relying upon his agreement to hold the property in trust for or to convey it to a third person, the devisee or legatee holds the property upon a constructive trust for the third person. (2) Where a person dies intestate relying upon an agreement by his heir or next of kin to hold the property which he acquires by such intestacy in trust for or to convey it to a third person, the heir or next of kin holds the property upon a constructive trust for the third person. Comment b to § 186 states in pertinent part: "Although the agreement cannot be enforced ... as an express trust or contract, the devisee or legatee or heir or next of kin would be unjustly enriched if he were permitted to retain the property which he would not have acquired but for his agreement to hold it in trust for or to convey it to a third person.” The trust is impressed to prevent unjust enrichment and does not require a showing of actual fraud.

Clark v. Tibbetts, 167 F.2d 397, 402 (2d Cir. 1948) (Clark, J., with Swan and Augustus N. Hand). Under a restitution analysis, it is of no consequence that the Timbrook-Potts agreement was made several years after the joint accounts were established. Comment d to Restatement of Restitution § 186 sets forth: It is immaterial whether the agreement of the devisee or legatee was made prior to or at the time of or after the execution of the will, provided that it was made at some time before the death of the testator. An agreement which induces the testator to refrain from revoking his will is as effective as an agreement which induces him to make a will. ⁵⁰³ This rule was applied in Belknap v. Tillotson, 82 N.J. Eq. 271 , 88 A. 841 (1913).

The essential facts were that the testator left a will dated January 26,1909 by which he gave $6,000 to his niece, Irene. By letter of September 1,1909, the testator asked Irene, in effect, to use only the income on that sum and, on her death, to bequeath it to his wife, sister and nephew. Irene agreed by letter of September 9, 1909. The testator died September 3, 1911 and Irene died five days later, without having provided, as promised, for the intended beneficiaries.

This was due to procrastination and not because of Irene’s lack of intent to perform at the time she made the promise. Irene’s executor was held to be a constructive trustee of the fund. Although there was some evidence that the testator may have written Irene that he would change his will if she did not agree, the court concluded that it was not necessary for him to have made a threat for the constructive trust to apply. The New Jersey court made plain that it was not enforcing the promise as a contract (id. at 279, 88 A. at 844 ): The testator did not promise that he would not change his will in the item that was in [Irene’s] favor in consideration of her promise to make her will in accordance with the promise.

The testator by his will was making a gift to Irene. He had the right to change, alter or revoke it at any time. He did not bind Irene to give up any part of her estate. Rather, the analysis is on constructive trust-unjust enrichment-restitution grounds (id. at 279-80, 88 A. at 844 ): At the time of the signing of