Yiatchos v. Yiatchos

PETITIONER:Yiatchos
RESPONDENT:Yiatchos
LOCATION:New York Times Office

DOCKET NO.: 48
DECIDED BY: Warren Court (1962-1965)
LOWER COURT:

CITATION: 376 US 306 (1964)
ARGUED: Jan 07, 1964
DECIDED: Mar 09, 1964

Facts of the case

Question

Audio Transcription for Oral Argument – January 07, 1964 in Yiatchos v. Yiatchos

Earl Warren:

Gust Yiatchos versus Pearle W. — W. Yiatchos, Number 48. Mr. Whitmore.

Ernest R. Whitmore, Jr.:

Mr. Chief Justice, may it please the Court.

This case involves the question of the beneficial ownership of the United States Savings Bonds when there is encountered a conflict between the survivorship provisions of those bonds and the community property law, in this case of the State of Washington.

The case was heard in the trial court on stipulated facts which essentially are these.

Angel and Pearle Yiatchos were married in Washington in 1943 and resided there as man and wife until the death of Angel in 1958.

In 1950 and 1951, Angel Yiatchos, the husband, purchased the United States Series E Savings Bonds in question with community property.

He named on each of these bonds as the POD or the pay-on-death beneficiary, his brother Gust Yiatchos.

At the time of his death, Mr. Yiatchos left the will in which he bequeathed all of his bonds to six relatives including one — among one of the six, his brother Gust who is also the petitioner here.

The bonds were of the total value of approximately $15,000 out of an entire community estate of approximately $36,500, and it is stipulated that the bonds are not required for the payment of creditors’ claims.

There are three claimants to the bonds, the petitioner Gust Yiatchos who is the beneficiary named on the bonds, the — the widow Pearle Yiatchos and the legatees under the last will and testament of Gust Yiatchos.

The contentions of the parties are best illustrated by considering the three possible results which were available to the Court in resolving the case.

If the survivorship provisions of the bonds were followed, the bonds would be awarded to Gust Yiatchos in their entirety.

If that should be construed to be a fraud on the widow, one half of the bonds could have been reserved or the equivalent in value could have been reserved to the widow by way of a trust.

If the purchasing of the bonds and the designate — designation of the brother as beneficiary were held to be a complete fraud and void in its entirety, the widow would then receive her half interest in the bonds and the legatees under the will would take by a way of the will the remaining half interest.

The trial court held that under the stipulated facts, this was in effect an attempted gift of community property and therefore, it was void in its entirety and the beneficiary designated on the bonds took nothing.

The widow — the bonds were held in trust for the estate which would give the widow her half interest and the other half interest would be distributed to the legatees named under the will.

The case was appealed to the Supreme Court of the State of Washington and after it had been submitted to the Supreme Court on written briefs and on oral argument but prior to the decision of the state court, this Court decided the case of Free versus Bland which also involved the question of beneficial ownership of U.S. Savings Bonds in a community property law state, it having a reason out of Texas and the question there presented to the Court was whether the Treasury regulations governing survivorship, determined the beneficial ownership of the bonds or whether they were merely for the convenience of the Government in making payment, with the Government having no interest in who ultimately receive the proceeds.

The Court held in Free versus Bland that the survivorship provisions and the Treasury regulations were a substantial feature of the bonds and intended to and which did make the bonds attractive to investors by virtue of the fact that it provided a very simple and efficient and quick way to transmit property on death and thus avoiding the — and thus to avoid the complications and the delay and the expensive probate proceedings, that these features contributed substantially to the marketability of the bonds and consequently to the management of the National Death by the U.S. Treasury Department under the constitutional authority to borrow money on the credit of United States.

The Court pointed out that under the Supremacy Clause of the Constitution, the relative importance to estate of its own state law is not material if it is in conflict with a valid federal law and stated this holding in this language.

“We hold, therefore, that the state law which prohibits a married couple from taking advantage of the survivorship provisions of United States Savings Bonds merely because the purchased price is paid out of community property must fall under the Supremacy Clause.”

The Court also indicated that there was an exception implicit in the bonds in the Treasury regulations so that the bonds could not become a sanctuary for fraud and that relief would be available under circumstances where fraud was — or breach of trust was manifest.

The Court indicated that the —

(Inaudible)

Ernest R. Whitmore, Jr.:

The Free versus Bland case?

Yes.

Ernest R. Whitmore, Jr.:

Yes, I understand that the Supreme Court of Texas determined that there were no allegations of fraud and therefore the decision in the U.S. Supreme Court was dispositive of the case and entered judgment accordingly.

The Court also indicated that the doctrine of fraud which would be applicable in this situation was the doctrine of fraud under federal law and cited in the footnotes, the cases of Clearfield Trust Company versus United States and Holmberg versus Armbrecht.

Following this decision, the Washington Supreme Court which had the case pending before it, decided in the instant case that the purchase of the bonds by the husband designating the brother as beneficiary was an attempt to convert community property into separate property and therefore, it was an effect a fraud on the wife and the purchase with the designation of the beneficiary was void ab initio and affirmed the trial court in its judgment that the named beneficiary on the bonds took nothing and that the bonds reverted to the estate with half to go to the wife and the other half ultimately to go to the legatees.

Is that on the theory that there is no consent by the wife to the purchase of the bonds?

Ernest R. Whitmore, Jr.:

There is no statement and no — no fact as to whether there was consent or not and the Court merely held in effect and it was a very brief opinion that in the absence of proof of consent that the mere purchase itself would constitute the constructive fraud as a matter of law.

Ernest R. Whitmore, Jr.:

The effect of this decision of the Washington Supreme Court is that a married person does not have the right to take advantage of the survivorship provisions of United States Saving Bonds when they’re purchased with community property, which we argue is flatly contrary to the specific holding in Free versus Bland.

The Court purported to bring the case within the exception stated in Free versus Bland but in its effort to do so, I would suggest that it had the exceptions swallow the holding and that the decision can be construed in no other way than that community property law transcends the Treasury regulations pertaining to these survivorship provisions.

With respect to the question of fraud, I would point out that there is no actual fraud contended for in the case, there were no allegations of actual fraud and there are no facts found upon which actual fraud could be said to exist.

The only way that fraud can be considered to be present in this case is simply by holding as a matter of law that a member of the community cannot purchase U.S. Savings Bonds designating anyone other than his spouse as beneficiary or presumably co-owner if it were that type of bonds.

In that regard, I would point out in the first place that the husband is the manager of the community property and as such, he has the right to handle the investments and to select the investments and this is regardless of either the knowledge or consent or even the objection of the wife.

It had —

Potter Stewart:

He does not have a right though, does he, to give substantial gifts to other people?

Ernest R. Whitmore, Jr.:

He does not have the right to make substantial gifts to other people without the wife’s consent.

Potter Stewart:

(Voice Overlap) involved.

Ernest R. Whitmore, Jr.:

That is correct.

Earl Warren:

Do you — do you suggest that this was a management of the affairs distinguished from the gifts of the — the brother?

Ernest R. Whitmore, Jr.:

I think that the purchase of the U.S. Savings Bonds in this situation involves both aspects.

In the first place, they are bought by a living person with the contemplation of continuing to live for a substantial period of time and in this case, he did and in that sense during the continuance of his life and of the marriage, these represent a security and consequently an investment of the community and assets of the community.

At the same time, either party to the community has the right to dispose of half — not more than half of the community property by will and this in effect an alternative to a will by — by way of making disposition of property on death.

So the U.S. Savings Bonds in this case are — are in the first instance, an investment which the husband is authorized to make as manager of the community property and in the second place, they are a technique or a device whereby he may transmit his share of the community property on death.

Earl Warren:

Why does this — this case differ from Free versus Bland on the facts?

Ernest R. Whitmore, Jr.:

In the facts of Free versus Bland, the husband and wife purchased — well, I don’t know who purchased the bonds but in any event, they were purchased in the name of the husband and the wife as co-owners.

Thereafter, the wife died and the husband claimed ownership of the bonds in their entirety and an heir of the wife claims that they should have remained part of her estate so that he could have inherited them.

In this case, the bonds were made payable to the brother as beneficiary and it is the wife who is claiming the bonds.

Byron R. White:

(Inaudible)

Ernest R. Whitmore, Jr.:

Yes, I am very definite.

Byron R. White:

(Inaudible)

Ernest R. Whitmore, Jr.:

But in any event, yeah, that is correct.

Our — our position is that — that the proper rule and that in seeking a uniform rule as the — as the Court has indicated should be sought under federal law and citing the — the Clearfield Trust Company case that this should not be left to state court decision but that the decision should here be made by this Court in this case and I will refer to that later and that a proper test in order to obtain a rule of uniformity rather than to leave it to the various decisions of the various state courts would be first to say that either there must be actual fraud or that there must be an attempt on the part of the offending spouse, if that is the proper term, an attempt on the part of the spouse by this device to dispose of more property than it could have by will.

And so long as he does not exceed that, it’s our contention that there is no fraud because here, the husband could have disposed of half of the community estate amounting to in excess of $36,000 by will.

By the device of community — of U.S. Savings Bonds, he has in effect attempted to dispose of less than that and therefore, it’s our contention that this cannot be said to be a fraud.

The —

Earl Warren:

Would that be true regardless of whether he did it over the objection of the wife or not?

Ernest R. Whitmore, Jr.:

Frankly, it would be my belief and opinion that it would be because the husband has the right.

He has the right to select investments regardless of the knowledge or consent of the wife and he has the absolute right to leave half of his property by will and there’s never been any suggestion that he has to obtain the consent or approval of the wife in order to dispose of his property by will.

Ernest R. Whitmore, Jr.:

Therefore, I suggest that there is no reason why he should not be free to dispose of it by this method regardless of the consent of the wife.

Earl Warren:

But if it wasn’t the investments, I suppose you can do — do the same with the entire (Inaudible).

Ernest R. Whitmore, Jr.:

I would certainly agree that he would be free to devote — to invest the entire community estate in community — in U.S. Savings Bonds.

However, if he attempted to dispose of a greater portion of the community property by this technique then he could have disposed off by will then I think that you would become involved with a — with a question of a fraud on the wife because she is entitled to her half of the community property.

Where it amounts to less than that, it’s our position that there can be considered to be no fraud and that the status which the Washington Supreme Court has left us in is that a — a husband has the right to dispose off half of his property by will, but that he can dispose of it only by will and that he can’t utilize U.S. Savings Bonds.

And in fact under the present situation of the law in Washington, an investment — or the use of U.S. Savings Bonds is something which a married person should very carefully avoid because if he attempts to make a disposition by way of U.S. Savings Bonds, he has depleted his estate by the amount which he has invested in the bonds and that attempted disposition is held entirely void and so he has whatever might be left to dispose of by will which is less than he could have if he had not bought U.S. Savings Bonds at all.

So if this state of the law is permitted to continue, the attractiveness of U.S. Savings Bonds to people certainly in the State of Washington and potentially in other community property estates — property estates has been very seriously diminished and damaged.

Byron R. White:

Well, I take it that the beneficiary’s interest in any event can’t — can’t arise or come into being until death?

Ernest R. Whitmore, Jr.:

These are pay-on-death bonds.

That is correct.

Byron R. White:

And naming the beneficiary anticipates — anticipates creating some interest at death.

Ernest R. Whitmore, Jr.:

Yes.

Byron R. White:

And if their gift — if they mature they are cashed in their community property.

Ernest R. Whitmore, Jr.:

Yes and there is no reason at all why at any time prior to the death of the named owner that the bonds would not be available for any legitimate community purpose.

They are subject to attachment by judgment creditors of the community.

They certainly would be within the jurisdiction of the Court in a divorce action in the division of property and simply constitute a perfectly valid and legitimate holding of the community so long as the community exists.

Byron R. White:

But your — I got a suggestion by virtue of the — of the federal law that his effort here to create his interest in the beneficiary which — which would arise only at death, would extend to the entire proceeds of the bonds.

Ernest R. Whitmore, Jr.:

Yes.

Byron R. White:

And you’re saying then that by virtue of the federal law, he may dispose of — in a — in the — by the equivalent of a testamentary disposition, he may dispose of the entire proceeds of the bonds whereas by will, he could only dispose of — of one half.

Ernest R. Whitmore, Jr.:

No.

I am saying that by will, he could dispose of one half of the entire estate.

Byron R. White:

That’s right.

Ernest R. Whitmore, Jr.:

So long as he does not exceed that, he has committed no fraud on his wife.

And if he wanted to — if he — if a man had an estate of $50,000 and he wanted to dispose of $25,000 of it by will and leave – the wife having the other $25,000, this is perfectly valid if —

Byron R. White:

So you admit the statement that if these bonds here represented the entire community estate.

Ernest R. Whitmore, Jr.:

I would agree.

In fact I would go so far as to say that if his bonds represented more than half of the community estate that then he — to that extent, he would be encroaching upon the wife’s half.

Byron R. White:

But —

(Inaudible)

Ernest R. Whitmore, Jr.:

Yes.

Byron R. White:

But how would you justify them, the three of (Inaudible), you say this is fraud?

Ernest R. Whitmore, Jr.:

If he endeavored to dispose of —

Byron R. White:

More than half.

Ernest R. Whitmore, Jr.:

— of more than half of his estate which would be more — which would then be encroaching upon his wife’s half of the estate, I think that I — I would recognize that there would be a fair contention for fraud on behalf of the wife.

Byron R. White:

Within the exceptions?

Ernest R. Whitmore, Jr.:

Yes, I believe so.

Byron R. White:

And there’s no proof here though — is there proof here as to — as to the relationship between these bonds in the estate?

Ernest R. Whitmore, Jr.:

I don’t understand what you mean by relationship Your Honor.

Byron R. White:

Well, how much —

Ernest R. Whitmore, Jr.:

Oh, by value?

Yes, there’s $15,000 with the bonds out of the total estate of $36,505.

Byron R. White:

And what did he attempt to dispose of by will?

Ernest R. Whitmore, Jr.:

I don’t believe it’s in the record Your Honor.

He — he left a substantial bequeaths to his wife and disposed of all cash and bonds of which a diocesan for just —

Byron R. White:

The record doesn’t show then what is the face value of the bonds plus what he attempted in his own will to dispose of equals more than half of the estate.

Ernest R. Whitmore, Jr.:

That is correct.

Byron R. White:

And it doesn’t show in the record.

Ernest R. Whitmore, Jr.:

It does not show in the record.

(Inaudible)

Ernest R. Whitmore, Jr.:

I — I would think it would be proper to consider as of the time of death because that is the estate existing at the time of death in which the wife is entitled to share her half.

(Inaudible)

Ernest R. Whitmore, Jr.:

Yes, yes. Yes.

(Inaudible)

Ernest R. Whitmore, Jr.:

If it invaded the wife’s half of the estate, I would say that there would be a — a reasonable case for constructive fraud upon the wife, but not until that time.

William J. Brennan, Jr.:

But Mr. Whitmore I don’t — the answer you gave to the question of Justice White because that’s the (Inaudible) —

Ernest R. Whitmore, Jr.:

No, I don’t —

William J. Brennan, Jr.:

Because as I understand it, the record doesn’t enlighten us whether the bonds — what he did under the will accomplishes the method to dispose of more than half of the estate.

Ernest R. Whitmore, Jr.:

In response to that and — and it is a — a question that I wanted to make some point of generally, it’s our position that under the federal law of fraud that the burden is upon the person asserting the fraud to allege it and prove it.

William J. Brennan, Jr.:

Well, I — I appreciate that but this case as I recall it was decided before the Free and Bland, wasn’t it?

Ernest R. Whitmore, Jr.:

Well that’s true.

William J. Brennan, Jr.:

And so that — at least to the extent of which the principle and the exception drafted on the principle in that case, that wasn’t only to the party for the lower court, was it?

When this case —

Ernest R. Whitmore, Jr.:

Free versus Bland.

William J. Brennan, Jr.:

Yes.

Ernest R. Whitmore, Jr.:

No.

William J. Brennan, Jr.:

In this case?

Ernest R. Whitmore, Jr.:

No, it was decided afterwards.

However, I think and I would suggest the law of fraud is — has been —

William J. Brennan, Jr.:

Well that maybe I don’t understand you but I thought you answered Mr. Justice White that if — what he attempted to dispose of by will, plus what he has done with these bonds, together it represents the effort to dispose of more than half of the community than to the extent that it exceeds half that would fall within the exception stated in Free and Bland.

Ernest R. Whitmore, Jr.:

Under the facts of the present case, I would say that since it does not appear that there is here an attempt to dispose of more than half of the community estate by will, or by the use of the — these bonds which we’re here concerned with that therefore, there is presently before us no fraud.

Now, if upon the final settlement of the case, it should appear that — and I think that that should be determined — determinative of the case at this point because —

Byron R. White:

(Voice Overlap) you mean there should be a — the fact that the — you say that it was up to the — the other side to allege and prove the fraud and since they didn’t, they’re out of court on the fraud.

Ernest R. Whitmore, Jr.:

As to the bonds.

Byron R. White:

And so you would not — you would not believe it’s open for a — for the proceedings of the law, must likely you did — like you said in the Free and Bland.

Ernest R. Whitmore, Jr.:

No, I would not because there are no allegations of fraud and there are no facts here from which fraud can be recognized.

(Inaudible)

Ernest R. Whitmore, Jr.:

The difference between Free versus Bland in this case is that that was before the Court on a decision on a summary judgment in which there were allegations of fact which had not yet been tried and were not before the Court on the summary judgment, but in this case it’s here on — on stipulated facts and there are no —

(Inaudible)

Ernest R. Whitmore, Jr.:

Oh yes.

Yes.

(Inaudible)

Ernest R. Whitmore, Jr.:

This is correct.

Earl Warren:

(Inaudible) I was concerned about — about this.

As I understood you, your position as of when he bought these bonds, he was engaging in the management of the estate and up to the time of his death, it was management of the estate and not any gift of any kind.

Ernest R. Whitmore, Jr.:

There was no gift —

Earl Warren:

Or gift of any kind.

Now, I’ve just been reading your statute when it says, “Upon the death of either husband or wife, one-half of the (Inaudible) shall go to the survivor subject to the community debts and the other half shall be subject to the testamentary disposition of the deceased husband or wife subject also to community debts.”

Now, is this some testamentary disposition?

Ernest R. Whitmore, Jr.:

No, this is what has been referred to in a — commented to as I would call it a will substitute or an alternative to a testamentary disposition.

Earl Warren:

But this doesn’t say testamentary or other — other disposition in contemplation of death.

Ernest R. Whitmore, Jr.:

In that — in that regard, I would like — I would like to refer the Court also to a later statute of Washington which is RCW 11.4.240 which says —

Earl Warren:

Where do we find that in your —

Ernest R. Whitmore, Jr.:

It’s on page 5 of the brief for petitioner.

Earl Warren:

(Inaudible) Thank you.

Ernest R. Whitmore, Jr.:

If the registered owner of U.S. Savings Bonds dies leaving a — a beneficiary named on the bonds, the beneficiary will be the sole and absolutely owner of the bonds and our state court simply held that this section doesn’t apply to community property but —

Earl Warren:

(Voice Overlap) does not?

Ernest R. Whitmore, Jr.:

Yes.

Earl Warren:

Well, this does.

Ernest R. Whitmore, Jr.:

Yes, but I would seriously dispute the position of the Court that that section should not apply to community property.

However, regardless of — of the matter of testamentary disposition, I think that we here under the Supremacy Clause if the state statute is construed to hold that disposition of property on death can be made only by testamentary disposition, we have in effect nullified the survivorship provisions of U.S. Savings Bonds and —

Byron R. White:

And Free against Bland.

Ernest R. Whitmore, Jr.:

— and Free against Bland and the supremacy of the Treasury regulations.

They would all — they would all vanish if that state statute were permitted to prevail.

So our position then — in summary is that there was no fraud here, no actual fraud and no constructive fraud and that if it be considered in line with the questions that were asked that as a result of the combination of the will in the U.S. Savings Bonds that there might — thereby be worth of potential fraud on the wife, but that adjustment should be made under the will and not under the U.S. Savings Bonds because until the U.S. Savings Bonds as instrumentalities in themselves constitute a fraud, they should be upheld under the Supremacy Clause.

William J. Brennan, Jr.:

(Inaudible) assuming now, different beneficiaries under the will which — who — who take plus the $15,000, brings it over to 50%, it would be at their expense but not at the expense of the —

Ernest R. Whitmore, Jr.:

Correct.

William J. Brennan, Jr.:

— (Voice Overlap) the bond.

Ernest R. Whitmore, Jr.:

That — that is our contention and that would be consistent with the Supremacy Clause in the enforcement of the Treasury regulations.

William J. Brennan, Jr.:

Whereas — but I wonder if — if this happened. Suppose there had been allegations of fraud and the only proof that had been that the $15,000 plus what was given under the will exceeded 50%.

Suppose those allegations had been made and that was the posture in which the case had come here then what would the result be?

Would you still argue that it must be of the expense of the other beneficiary?

Ernest R. Whitmore, Jr.:

I — I think — I — I view it as the same question.

William J. Brennan, Jr.:

And — and not within the exception of fraud?

Ernest R. Whitmore, Jr.:

No, because the use of the bonds would not constitute the fraud.

Byron R. White:

So, I thought that you answered Justice Douglas a while ago that there would be pro tanto.

Ernest R. Whitmore, Jr.:

Yes, only beyond the 50%.

Byron R. White:

I know but —

William J. Brennan, Jr.:

(Voice Overlap) in stating any of the $15,000 into the bonds or just the interest of the beneficiary of the will?

Ernest R. Whitmore, Jr.:

I — I would think that the interest of the beneficiary is under the will.

Byron R. White:

Perhaps I misunderstood you.

Ernest R. Whitmore, Jr.:

Yes and perhaps I misunderstood his question.

I believe my time is —

William J. Brennan, Jr.:

Well, on your position in — in summary is that you think whether or not within the fraud (Inaudible) allegations, it doesn’t come within the exception under — to your plan and that the beneficiaries of these bonds are entitled outright whatever may be the face of the beneficiaries under will.

Byron R. White:

But there might —

Ernest R. Whitmore, Jr.:

Yes.

Byron R. White:

— but if the figures could be such of course that in order to make and make it up, the other beneficiaries under the will wouldn’t have enough left to them.

I mean and for example that the $15,000 for the entire estate, obviously you would have — you wouldn’t say that (Inaudible) going to have to wife.

Ernest R. Whitmore, Jr.:

If these bonds with the entire estate, the wife would be entitled the half of them.

If there were a will —

Byron R. White:

You still need some more facts before you know whether this $15,000 (Inaudible) facts in the record to show —

Ernest R. Whitmore, Jr.:

The — the facts in the record are that that the entire estate is $36,000 and the bonds are $15,000.

William J. Brennan, Jr.:

Well, that’s in this record?

Ernest R. Whitmore, Jr.:

That’s in the record.

That’s in the stipulated facts.

So half of that would be $18,000 and this is less than that so the bonds —

Byron R. White:

Wait a minute, is this the entire estate is how much?

Ernest R. Whitmore, Jr.:

$36,000

Byron R. White:

Well, is that aside from the bonds or including?

Ernest R. Whitmore, Jr.:

That’s including the bonds.

Byron R. White:

Including the bonds.

Ernest R. Whitmore, Jr.:

That’s correct.

This, therefore, amounts to less than half of the entire estate.

Byron R. White:

Well yes, if — but we don’t want the community debts are, do we?

Ernest R. Whitmore, Jr.:

It’s — it’s simply stipulated that the proceeds of the bonds are not needed for payment of community debts.

That — that’s in the stipulated facts.

Byron R. White:

Well, yes but that (Inaudible)

Ernest R. Whitmore, Jr.:

Well, it is not.

Byron R. White:

And in the bonds or the debts that he have all — all of the non — but all of the non-bond (Inaudible).

Ernest R. Whitmore, Jr.:

My — my —

Byron R. White:

Isn’t that true?

Ernest R. Whitmore, Jr.:

This is a possibility and — and that would be a necessity in order to constitute the fraud.

It’s the burden on the party alleging the fraud to establish the fraud and they have not done so and under the facts —

Byron R. White:

I understand you — I understand you, you’ve got that approach too but on the facts here, we do not know really, on this record whether or not any of the bonds are needed to satisfy the wife’s half of the estate.

Ernest R. Whitmore, Jr.:

It doesn’t appear that they are and it should have been made —

Byron R. White:

And surely they are either.

Ernest R. Whitmore, Jr.:

— and it should have been made to appear so by the party having the burden of proof.

Thank you.

Earl Warren:

Mr. Cone.

Charles W. Cone:

Mr. Chief Justice, members of the Court, if the Court please?

The question as arisen initially or at this time as to whether or not there was fraud in the purchase of these bonds by Angel Yiatchos at the time of the purchase.

We admit at this time that the record is not complete.

Mr. Whitmore and I stipulated to all material facts and there are now facts that appear more material than they did in 1959 when we so stipulated.

However, the trial court made a founding — a finding which in a sense is a finding that there was fraud.

This was an attempted gift by a husband of what is stipulated to be community property, and this would be a — a constructive fraud upon the wife if it was done without her consent, without her knowledge, without subsequent ratification by her or without consideration or benefit to the community.

It seems to me that the trial court so found in its decision when it ruled that these were community property and the wife was entitled to one-half because any other ruling would have the effect of stating that it was separate property and the husband had a right to do this.

I want to briefly outline what the state — in the Supreme Court of State of Washington found in these matters after argument.

On page 19 of the record, Supreme Court says, “This purchase was in fraud of the rights of the respondent wife” and then after a test, this was a unilateral attempt to convert community property into separate property and void ab initio.

(Inaudible)

Charles W. Cone:

Alright, assuming there was fraud, we’ll go on from there.

The properties —

Charles W. Cone:

Yes.

(Inaudible)

Charles W. Cone:

Initially, the first answer to that question Your Honor is that the husband has — does not have the present right to distribute or giveaway or use one-half of the community property.

Their ownership of community property is an undivided half interest, and a husband cannot unilaterally divide the community property.

He cannot say the Buick is mine and the Cadillac is yours or the bank account is mine and the bonds are yours or make any other division without consent of the wife.

(Inaudible)

Charles W. Cone:

I do not believe so.

My — the — our survivorship statute says, “They own this and on death, it passes half to each subject to the community debts.”

Now, admitting in this case or admitting as we did in — in the record in 1959 that the bonds were not needed to pay the debts of the community, they might now be — since this litigation has extended, take the case where they were needed then the husband — if the beneficiary provisions of the — the Treasury regulations are to be upheld would be able to impose upon the wife’s share of the estate, the entire burden of paying the community debts upon his death.

(Inaudible)

Charles W. Cone:

He does, yes.

(Inaudible)

Charles W. Cone:

I do not know.

I would say he — he cannot say — say particularly which half as — as he’s doing in this case.

I think that certainly, he — he can’t setup the two trust accounts, one for each and say, “This is mine and this is yours.”

(Inaudible)

Charles W. Cone:

I believe he could do so, yes sir, subject to the community debts.

(Inaudible)

Charles W. Cone:

I believe it does.

(Inaudible)

Charles W. Cone:

Your Honor the — this is a — in this particular case, this is not an undivided half interest to the wife, Your Honor.

(Inaudible)

Charles W. Cone:

No.

(Inaudible)

Charles W. Cone:

That — that is correct.

(Inaudible)

Charles W. Cone:

Well, in — in this particular — well, I am trying to come up with an answer sir.

If — if —

(Inaudible)

Charles W. Cone:

Well, I see then.

(Inaudible)

Charles W. Cone:

Well I’m — I’m arguing Your Honor that if the — the survivorship provisions must be upheld then a husband can remove that portion of it from the — the debts of the community.

Now, in this case, it would not happen but — it could in other cases.

(Inaudible)

Charles W. Cone:

Well, I think the — the rule will — will be applied in other cases that the — the ruling of this Court would have the effect of stating that the beneficiary does need it on the bonds with the owner of half of them and — and if that is the ruling then in other cases, the — the wife share of the estate can be depleted as I say by the community debts.

(Inaudible)

Charles W. Cone:

Yes, it could.

(Inaudible)

Charles W. Cone:

Yes.

(Inaudible)

Charles W. Cone:

Yes, it was.

(Inaudible)

Charles W. Cone:

Yes, it could.

There — there is another point we should consider and that is the difference in this case and that of Free versus Bland in — in the — your decision in Free versus Bland was upholding the right of a married couple to take advantage of the survivorship provisions of the Treasury regulations.

In this case, a married couple was not doing so.

One member of the marital community was doing so and — and there is considerable difference.

William J. Brennan, Jr.:

Mr. Come may I just ask one (Inaudible)

Charles W. Cone:

Yes.

William J. Brennan, Jr.:

— what your Supreme Court said.

And what — what it actually said was, “The husband’s purchase a community bonds, the bonds payable to him (Inaudible) after his debts payable inclusively to his brother was in fraud of the right to the respondent’s point.

This was a unilateral attempt to convert community property into separate and void ab initio.

Now, is that a finding as a matter of law of constructive fraud?

Charles W. Cone:

I believe so, yes.

William J. Brennan, Jr.:

In other words, there’s no —

Charles W. Cone:

Or maybe actual fraud if he intended this fact —

William J. Brennan, Jr.:

Well, that’s why — that’s why I asked the question.

What — what is thereabout that little two sentences, even I note, the only two I find in the opinion in its view of the question of fraud to suggest that this was based on any evidence of actual fraud if there was?

Charles W. Cone:

I don’t think I suggested it was based on, I assume.

William J. Brennan, Jr.:

So that — that this is an — as a matter of constructive law.

Charles W. Cone:

Yes.

William J. Brennan, Jr.:

Now, the problem that we have is whether that for the purposes of our exception in Free and Bland is fraud as a question of federal law, isn’t it?

Charles W. Cone:

That — that is one of the questions, yes sir.

William J. Brennan, Jr.:

Well, I mean isn’t that the question?

Didn’t — didn’t we make in Free and Bland the question of fraud a question of federal law rather than state law?

Charles W. Cone:

Yes, you did.

William J. Brennan, Jr.:

And so the problem is whether we’re going to accept that state rule as a federal rule of fraud for the purposes of offenses?

Charles W. Cone:

That’s one of the problems and —

Byron R. White:

Now, why — did you (Inaudible)

Charles W. Cone:

Yes sir.

Byron R. White:

What is — why is the mere act of purchasing the bonds and putting — and putting them in his name alone would the beneficiary — with his brother as beneficiary which particularly says that this is upon death.

Byron R. White:

Why is that — why is that act alone — why does that act amounts to (Inaudible)?

Charles W. Cone:

It has the — the effect of doing so because upon his death, the wife is removed from many access to that portion of the community property if he put all of his, say all of his money into — into bonds payable-on-death to his brother, then wife would be the divested of all the property.

Byron R. White:

Well, I understand that — I understand (Inaudible).

Probably, he’ll have a problem that these bonds are not with the entire estate.

Let’s assume for the moment the bonds are invest, it wouldn’t have to be estates, at the time he’s (Inaudible) and continuously thereafter, (Inaudible) what is — what is really brought you with the husband is buying a $15,000 worth of bonds with his entire estate, let’s assume it’s $60,000 for these bonds.

What is the (Inaudible) of that?

Charles W. Cone:

He is making a — a division of the community — community property without the consent of his wife.

Byron R. White:

Well, it isn’t the provision, it’s a —

Charles W. Cone:

It is immediately upon his death, it becomes one.

Byron R. White:

Well if the other your laws — your law that allows this — allows this by another type of (Inaudible) piece paper, he could leave exactly the same amount to his brother, does not (Inaudible)?

Charles W. Cone:

He — he can’t leave the — the particular money or the particular property by will.

It’s a $15,000, if — if he wrote his will and left his brother $15,000, it would still be subject to the wife’s community interest if it was insufficient or — and also subject to the community debts.

(Inaudible)

Charles W. Cone:

That — that’s true.

(Inaudible)

Charles W. Cone:

Yes.

(Inaudible)

Charles W. Cone:

Or by agreement of the parties.

I — I want to remind the Court since we’re dealing with Treasury regulations that — that there’s one cited in our brief CFR 315.5 and if precedes these regulations concerning the survivorship provisions of — of bonds and its estates, United States Savings Bonds are issued in only — only in registered form.

The form of registration must express the actual ownership of an interest in the bonds.

Now, we contend that a bond purchase without consent of his wife by a husband payable-on-death to someone else does not express as a — the regulations require her interest in the bonds because she retains an interest in these bonds until her death.

And if we’re going to — and we think that is the intent of — of this regulation is to provide that the survivorship regulations will prevail if the bonds are purchased properly and show the proper interest to the parties at the time of purchase.

Now, his wife, Mrs. Yiatchos, had an interest in these bonds throughout the — the marriage.

The — the divesting over that interest was in violation of — of these regulations, in this regulation as well as the survivorship regulation should be maintained.

Unless there are further questions, I will conclude my argument.

We move that the — the decision of the lower court be affirmed.