in trust for one, to whom the depositor is indebted, the deposit will not, in the absence of evidence to the contrary, be construed to be a payment of the debt. In the case of Matter of Hewitt,58 one Edward Goodheart had opened an account in his name in trust for Robert C. Hewitt, to whom, it appeared Goodheart was indebted on two notes for $100.00 each. After Goodheart's death Hewitt qualified as his executor. Hewitt retained the trust deposit and collected the amount of the notes out of the estate. It was held that Hewitt was justified in his action, as the trust did not operate as a payment of the notes.

$ 14. Effect of failure to refer to trust fund in will.— The fact that a person, who has deposited money in his name in trust for some other person, subsequently executes a will, in which no reference is made to the trust fund, has been held to strengthen the indication that the depositor intended to create a trust. The failure to refer to the fund in the will, which purports to dispose of all of the depositor's property, tends to show that the depositor believes that the trust deposit is already effectually disposed of.59

§ 15. Effect of death of beneficiary before depositor. -In a case where an irrevocable trust has been created the death of the beneficiary does not cause a lapsing of the trust. The interest of the beneficiary passes to his next of kin or, if he has made a will, to the persons designated

58. 40 Misc. Rep. (N. Y.) 322, 81 N. Y. Supp. 1030, (1903). 59. Proseus v. Porter, (1897), 20 N. Y. App. Div. 44, 46 N. Y. Supp. 657.

therein.

But, in a case where there is no further evidence of an intent to create a trust than is supplied by the mere form of the deposit, the death of the beneficiary before that of the depositor terminates the trust.60

§ 16. Liability of bank in paying trust deposit.—During the lifetime of the trustee the bank may pay the drafts of the trustee drawn upon the fund without liability. The bank is under no legal duty to inquire into the use to be made of the money by the trustee, and, if the trustee makes an improper use of the money, the bank is not liable.61

But, if the trustee is indebted to the bank, the bank will not be permitted to accept payment of the indebtedness out of the trust fund. This would be a violation of the trust, of which the bank would have notice, and the transaction would not be binding as against the beneficiary. The beneficiary might afterwards ratify the payment and hold the trustee liable, or he might repudiate the payment and hold the bank.62

A bank is held not to incur liability in paying a trust deposit to the administrator of the depositor. In one case it appeared that, in 1866, one Susan Boone made a

60. Matter of Duffy, (1908), 127 N. Y. App. Div. 74, 111 N. Y. Supp. 77; Matter of United States Trust Company, (1907), 117 N. Y. App. Div. 178; Aff'd., 189 N. Y. 500; Garvey v. Clifford, (1906), 114 N. Y. App. Div. 193, 99 N. Y. Supp. 555; In re Bulwinkle (1905), 107 N. Y. App. Div. 331, 95 N. Y. Supp. 176; For a decision holding the contrary see Bishop v. Seamen's Bank, (1898), 33 App. Div. 181, 53 N. Y. Supp. 488.

61. Sayre v. Weil, (1891), 94 Ala. 466, 10 So. Rep. 546; Pennsylvania Title and Trust Co. v. Meyer, (1902), 201 Pa. 299, 50 Atl. Rep. 998.

62. Sayre v. Weil, (1891), 94 Ala. 466, 10 So. Rep. 546.

deposit in a savings bank in her name "in trust for Christopher Boone." After Mrs. Boone's death the bank paid the deposit to the administrator of her estate. It was provided in the by-laws of the bank that payments to persons producing pass books would discharge the bank, and that, on the death of the depositor, the deposit might be paid to his legal representatives. The administrator of Christopher Boone brought suit against the bank. It was held that the payment discharged the bank, the bank having had no notice of a claim in favor of the beneficiary. The contract of the bank was to pay the deposit to the trustee on demand. The obligation to pay was strengthened by the provisions of the by-laws. Upon the death of the depositor the right to demand payment devolved upon her administrator. In fact the bank had no alternative but to pay. It had no right to inquire into the character of the trust, and owed no duty to the beneficiary, until the latter, by notice, created such a duty.63

The bank was also held to be free from liability where it paid over a trust fund to the representatives of the beneficiary of the fund before any demand was made on the bank by the representatives of the trustee.64

But when a bank has received notice from one of the parties to a trust deposit that the deposit is claimed by that party, the bank will be held liable if it pays the fund to the other party and it turns out that the party giving notice was entitled. In other words, where both parties

63. Boone v. Citizens' Savings Bank, (1881), 84 N. Y. 83. 64. Bishop v. Seamen's Bank for Savings, (1898), 33 N. Y. App. Div. 181, 53 N. Y. Supp. 488.

claim the fund the bank, if it pays to either, assumes the responsibility of determining which of the two parties is rightfully entitled to the money. As a correct determination of this question often depends upon facts and circumstances not within the bank's knowledge, payment to either is dangerous. If the bank makes a mistake in selecting the party to whom the money belongs legally it must pay the amount over again at the instance of the party who has thus been wrongfully deprived of the money. The only safe course for a bank to pursue in such a case is to hold the fund until one of the two establishes his right to the fund by an action brought for that purpose.

In the case of Fowler v. Bowery Savings Bank,65 the contest was over a deposit by John White, in trust for his wife, Elizabeth White. The action was brought by the executor of Elizabeth White and the bank's defense was that it had paid the executor of John White under the authority of the case of Boone v. Citizens' Savings Bank, (supra). But it here appeared that, before the payment to John's executor, the bank had notice of the claim of the estate of Elizabeth. The executor of Elizabeth testified that he called at the bank, exhibited his letters testamentary, and that he was told by an officer of the bank that he would be paid upon producing the pass book. This was held to be sufficient notice to the bank. It was held, therefore, that the bank was not justified in paying John's executor and that it was liable for the amount to the executor of Elizabeth.

Where a deposit was made in trust for a grandchild of 65. 47 Hun (N. Y.) 399, (1888).

the depositor, it was held that the bank, which paid the deposit to the father of the beneficiary, upon the production of the pass book, was liable to the beneficiary for the amount paid.66

There are statutes in several of the states which provide for the payment of trust deposits by the banks holding them. A careful reading of the statutes will disclose that they provide in general that, where the bank has no notice of the terms of the trust, it may, after the death of the trustee, pay the deposit to the beneficiary. These statutes, it should be noted, do not alter the rights of the parties to the trust. They do not pretend to transform into a valid trust a transaction which does not constitute a valid trust apart from the statute. Their object is to protect the bank which pays a trust deposit in good faith. If, after the deposit has been paid, it develops that no valid trust was created in the first instance, then the parties are left to determine their rights between themselves. They cannot come back upon the bank.67

§ 17. Beneficiary cannot compel bank to pay during the life of the trustee. A bank, in which a deposit is made in the name of the depositor in trust for some person, cannot be compelled, at the instance of the beneficiary of the trust to pay over the fund, while the trustee is still living, unless the trustee consents or is made a party to the action. The contract of the bank is with the trustee, and it cannot

66. Ficken v. Emigrant Industrial Savings Bank, (1900), 33 Misc. Rep. (N. Y.) 92, 67 N. Y. Supp. 143.

67. For the text of the statutes, which have been enacted in the different states, see Appendix B.