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Alexander v. Mermel

OCTOBER 4, 1960.




Appeal from the Circuit Court of Cook county; the Hon. EZRA J. CLARK, Judge, presiding. Reversed and remanded with directions.


This is an appeal from a judgment on the pleadings in a cause brought to recover the proceeds of certain U.S. Savings Bonds. The action was brought by Victoria Alexander, surviving co-owner of the bonds and a sister of the deceased co-owner, against Alice Mermel, wife of the deceased co-owner. Alice Mermel filed an intervening petition as Administrator.

During a period between May, 1942, and October, 1949, ninety-three U.S. Savings Bonds Series E were purchased by Peter Mermel, deceased, with his own funds. Ninety-two of the bonds were registered in the name of "Peter Mermel or Victoria Bigos" and one bond was registered in the name of Peter Mermel, payable on death to Victoria Bigos. Victoria Bigos subsequently married and is now known as Victoria Alexander. She is the sister of Peter Mermel, deceased. The face value of the bonds which were purchased was $6,100.00.

Peter Mermel married the appellant on November 23, 1949. He died on July 20, 1957. Appellant retained possession of the bonds after the death of Peter Mermel and this declaratory judgment action was filed praying for possession of the bonds and an adjudication of ownership in appellee.

On appellee's motion for judgment on the pleadings, the court entered declaratory judgment that the sole and absolute ownership of the savings bonds was in appellee, and that Alice Mermel, individually or as administrator for Peter Mermel, has no right, title or interest in the Savings Bonds. This appeal is from that judgment.

Appellant in her answer to the complaint alleges that after the marriage of Peter Mermel, for the purpose of settling the rights in the bonds as between them, Peter Mermel and his sister, the appellee here, entered into an oral agreement by which she agreed to give up her rights in the bonds in exchange for sole ownership of a certain bank account and three Savings Bonds, having a combined value of over $3,000.00. The passbook and bonds were delivered to appellee and she has retained them as her own.

Taking the allegations as true, as we must on a motion for judgment on the pleadings (Thillens v. Hodge, 2 Ill.2d 45, 116 N.E.2d 886; Dryz v. Bol, 19 Ill. App.2d 406, 153 N.E.2d 859) we turn to the problem of applying the law to the situation thus presented.

Our case has for its decision three essential portions: 1) whether the surviving co-owner or the estate of the deceased co-owner is entitled to the proceeds of U.S. Savings Bonds upon the death of the co-owner who supplied the consideration for the purchase; 2) if the party entitled to the proceeds is determined by the federal regulations dealing with the party to whom the government may make payment, which means that the surviving co-owner is the only one to whom the government will pay, may a constructive or resulting trust be imposed upon the funds in the hands of such co-owner; 3) if a trust may be so imposed, was there sufficient evidence of the creation of the trust in the oral agreement to accept other funds for appellee's interest in the bonds, and is it possible for one co-owner to so assign her rights?

As to point one, there are two different solutions to be found in the decisions.

One view is that the federal law and regulations become a part of a contract between the purchaser and the government, creating property rights in the co-owner, and that payment to the surviving co-owner makes such co-owner the absolute owner of the proceeds of the bonds. The other, and minority view, is that the federal regulations do not become a part of a contract, but are only a specification of a convenient method through which the government may discharge its liability and yet not become involved in litigation. Under this view, the source of the funds used in purchasing the bonds and the state laws as to the devolution of property become important in determining whether the co-owner is the absolute owner or merely indebted to the estate of the co-owner supplying the funds for the purchase.

Aside from questions of the supremacy of the federal law (Lee v. Anderson, 70 Ariz. 208, 218 P.2d 732), the majority view proceeds on the contract theory, whether it be characterized as a third party beneficiary contract or not. Chase v. Leiter, 96 Cal.App.2d 439, 215 P.2d 756; In Re Barnes' Will, 4 Wis.2d 22, 89 N.W.2d 807. Thus, the courts have been unwilling to vary the terms of the written agreement. The surviving co-owner need not have contributed anything to the purchase of the bonds, Lambert v. Lambert, 95 Ohio App. 187, 118 N.E.2d 545. Retention of possession of bonds purchased by the decedent with his own funds does not defeat the right of the surviving co-owner to the proceeds of the bonds. Hinson v. Plowden, 91 F. Supp. 836 (DCSC 1950). The intention to make a gift, or the lack of such intention, is not determinative. Conrad v. Conrad, 66 Cal.App.2d 280, 152 P.2d 221; Knight v. Wingate, 205 Ga. 133, 52 S.E.2d 604. The state laws of descent and distribution have no application to vary the terms of the contract. In Re Clemmons, 242 Iowa 1248, 49 N.W.2d 883. The proceeds devolve through the contract, and not by the will of the deceased co-owner. Hill v. Havens, 242 Iowa 920, 48 N.W.2d 870. However, once the proceeds have been paid over to the surviving co-owner, even in jurisdictions using the contract approach the funds may be impressed with a constructive or resulting trust in appropriate circumstances. See 51 ALR2d 163.

The second approach to this problem has been used by a minority of jurisdictions. It requires an investigation of the donative intent of the co-owner supplying the funds with which the bonds are purchased and the state laws of devolution of property become important in the determination of ownership. In re Gladney, 223 La. 949, 67 So.2d 547.

One reason exists for believing that the Illinois Supreme Court would adopt this view, and that is the decision in In re Estate of Schneider, recently applied by this court in the case of In the Matter of the Estate of Fitterer (Gen. No. 47958), in which the former contract theory was abandoned in favor of the gift theory in solving the problem of survivorship rights in joint bank accounts.

However, a valid reason exist for not applying this approach to U.S. Savings Bonds. Unlike the joint bank account provisions, the Illinois statutory provision is parallel to and based upon the federal laws and regulations. ...

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