The opinion of the court was delivered by: WATSON
This is a Petition for Review of the Referee's Order denying Trustee's petition for an order directing the Hazleton National Bank of Hazleton, Pennsylvania, to turn over certain personal property to the Trustee in Bankruptcy.
Frederick R. Gallagher, Trustee of the Estate of Harry Y. Smulyan, Bankrupt, presented to the Referee in Bankruptcy a Petition to Direct Surrender of Property, alleging therein that the bankrupt was the owner of certain United States Savings Bonds, Series 'E', purchased prior to March 9, 1948, all of which were made payable to 'Harry Y. Smulyan or Mrs. Marion Smulyan'; that on various dates prior to March 9, 1948, the bankrupt endorsed the bonds and deposited them with the Hazleton National Bank in an attempt to pledge or hypothecate them as collateral for loans made from the said bank to the bankrupt; that after the filing of the Involuntary Petition in Bankruptcy on June 2, 1950, and the adjudication of bankruptcy on June 5, 1950, the bank cashed or redeemed said bonds and applied the proceeds against the balance of the bankrupt's unpaid loans. The trustee contends that the bonds, or the proceeds thereof, are the property of the bankrupt estate and that the bank should be directed to surrender these bonds or their proceeds to the trustee for the benefit of the estate.
The Referee in Bankruptcy denied the petition on the ground that the bonds were held by the bankrupt and his wife as tenants by the entirety and consequently formed no part of the estate of the bankrupt. The trustee now has filed this Petition for Review of the Referee's Order.
The primary and controlling question in the case is whether the bonds in dispute, issued in the names of 'Harry Y. Smulyan or Mrs. Marion Smulyan', were owned by them as tenants by the entirety. If the bonds were held by the entirety, and such estate was not terminated, it is clear that the bonds are not part of the bankrupt's estate.
The question involved has not been determined by the appellate courts of Pennsylvania, but a number of the lower courts in Pennsylvania have ruled on the question. A majority of the lower courts deciding the question have held that a tenancy by the entireties is created when United States Savings Bonds are issued in the names of 'Husband or Wife'.
Two of the lower courts, however, have held that ownership of these bonds cannot be held by the entirety in Pennsylvania.
The above court overlooked the fact that the Pennsylvania Supreme Court has repeatedly held that where money is deposited in the name of 'Husband and Wife' or 'Husband or Wife', using both names, or securities are held in the same manner, a tenancy by the entireties is created in the money
and the securities,
and the fact that either spouse has the power to withdraw funds or convert securities into cash does not alter the character of the estate. The money thus withdrawn is impressed with the entirety provision that it is the property of both.
This Court cannot, therefore, state that a United States Savings Bond, Series 'E', registered in the name of 'Husband or Wife' is not held by them as tenants by the entirety merely because it is payable to either of the inscribed owners.
In Ruben v. Ruben, 95 Pittsb.Leg.J. 65, the court also refused to find that the husband and wife held the bonds as tenants by the entirety on the theory that the regulations of the Treasury Department governing United States Savings Bonds have the force of law and supersede the laws of the Commonwealth of Pennsylvania insofar as this particular type of property is concerned, and a Savings Bond is to be differentiated from a bank account standing in the name of 'Husband or Wife'.
It is true that the rights of the owners of these bonds under Pennsylvania law are superseded by the Federal law to the extent that the rights under Pennsylvania law are inconsistent with the Federal law or regulations promulgated by the Secretary of the Treasury. United States v. Dauphin Deposit Trust Co. et al., 1943, D.C.M.D. Pa., 50 F.Supp. 73. We may take notice of these regulations.
The regulation governing the issuance of Series 'E' bonds provides that they may be issued only in three ways:
(1) One person. In the name of one person, for example: 'John A. Jones'.
(2) Two persons; coownership form. In the names of two (but not more than two) persons in the alternative ...