Bean, Ralph Judy, Jr.

English

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Volume 67 Issue 1 Article 10 December 1964 Property--Cancellation of Note at Payee's Death Not Testamentary Gift Ralph Judy Bean Jr. West Virginia University College of Law Follow this and additional works at: https://researchrepository.wvu.edu/wvlr  Part of the Estates and Trusts Commons, and the Property Law and Real Estate Commons Recommended Citation Ralph J. Bean Jr., Property--Cancellation of Note at Payee's Death Not Testamentary Gift, 67 W. Va. L. Rev. (1964). Available at: https://researchrepository.wvu.edu/wvlr/vol67/iss1/10 This Case Comment is brought to you for free and open access by the WVU College of Law at The Research Repository @ WVU. It has been accepted for inclusion in West Virginia Law Review by an authorized editor of The Research Repository @ WVU. For more information, please contact ian.harmon@mail.wvu.edu. WEST VIRGINIA LAW REVIEWIn the principal case it was common knowledge that rocksoccasionally fell from the cliff. Because of the apparent danger,warning signs had been erected and maintained since 1935. Theplaintiff testified that he had knowledge of the fact that rocks fellintermittently and that he knew the situation was dangerous. Fromthese facts it is possible that a jury might find that a person washimself negligent by driving an automobile into the area, or that aperson knowingly entering into a dangerous situation has assumedthe risk. It is for these reasons that the Supreme Court of Appealsof West Virginia held the trial court in error for refusing instruc-tions as to these defenses.Although W. VA. CODE ch. 17, art. 10, § 17 (Michie 1961) seem-ingly imposes absolute liability upon municipalities for disrepairof its public streets, our appellate court has held otherwise. Theonly way that the term "absolute liability" can properly be usedwhen referring to the court's interpretation of section seventeen iswhen speaking of liability without negligence. Even when used inthis sense the term is not literally correct because before liabilitywill attach the city must fail to comply with the standard as setforth in the Burdick case. This suggests that the court might re-frain from the use of the term completely. Nevertheless the de-cisions are sound. Few can doubt the inherently undesirable con-sequences which would result if the appellate court did not care-fully govern the application of the statute. The cost of maintainingpublic streets would be extravagant if the statute were construedotherwise.Charles Ellsworth HeilmannProperty-Cancellation of Note at Payee's DeathNot Testamentary GiftA note was given as part payment for the purchase of a restaurant.The note contained a condition which specified that if the payee,who was the maker's partner in operating the restaurant, prede-ceased the maker while the note was unpaid, the outstanding bal-ance would be considered paid and cancelled. Suits by residuarylegatees of the payee on the note were dismissed by the lowercourt. Held, dismissal affirmed. The court found that no liabilityexisted on the note following the death of the maker. Since the[Vol. 671Bean: Property--Cancellation of Note at Payee's Death Not TestamentaryDisseminated by The Research Repository @ WVU, 1964CASE COMMENTScondition was contractual and not testamentary in character, thiswas not an invalid attempt to make a testamentary disposition. Theformalities of the Statute of Wills had no application. Nunally v.Wilder, 330 F.2d 843 (D.C. Cir. 1964).This case raises the question of how far the courts will allow aperson to go in making a gift of property without incorporating thegift in a will. The principal case seems to be indicative of thetendency of some courts to avoid the proposition that an attemptedgift is testamentary and void. By construing the condition in the noteas contractual, the court was able to say that the Statute of Willswas inapplicable. Whether the result would have been the sameif the maker and payee had not been business partners or whetherother courts would have disregarded the Statute of Wills is ques-tionable. However, at least one case has been found where anothercourt's holding was analagous on a similar set of facts. In re Estateof Lewis, 2 Wash. 2d 458, 98 P.2d 654 (1940). In that case a de-cedent, during his lifetime, conveyed land to his son, taking backa purchase money mortgage. The mortgage provided that anyamount due on the mortgage at the time of the mortgagee's deathshould be cancelled and considered paid by his executors. Thecourt held that the provision in the mortgage was not an invalidtestamentary disposition but a binding contract between the mort-gagor and mortgagee.There is authority that the outcome in the instant case wouldhave been different had the court looked at the transaction as agift subject to a condition precedent rather than a contract. Kimmeyv. Kimmey, 273 App. Div. 142, 77 N.Y.S.2d 374 (Sup. Ct. 1948).In the Kimmey case the payee of certain notes delivered them to themaker, telling him that the notes should be considered a gift inthe event the payee's wife should predecease the payee. The courtfound that the transaction did not establish a valid gift inter vivoseven though the payee's wife predeceased him, because there wasno intent to make a present gift.There are several analagous situations which are in the nature oftestamentary dispositions and which illustrate the extent to whicha person may go in disposing of property without having to complywith the statutes governing wills. The question frequently ariseswhere gifts of real or personal property are contemplated, particu-larly where the subject matter involves savings accounts. In addi-1964]2West Virginia Law Review, Vol. 67, Iss. 1 [1964], Art. 10https://researchrepository.wvu.edu/wvlr/vol67/iss1/10WEST VIRGINIA LAW REVIEWtion, the "Totten trust" doctrine, which has been adopted by severaljurisdictions, has been attacked as an attempted testamentary dis-position.The common law inter vivos gift has four strict requirements:present donative intent, delivery, relinquishment of dominion bythe donor and acceptance by the donee. Beaver v. Beaver, 117N.Y. 421, 22 N.E. 940, 6 N.Y. Supp. 586 (1889). Unless the allegeddonee takes a present interest in the subject matter, the gift isunenforceable. BROwN, PERsoNAL PoPERT § 48 (2d ed. 1956).However, the rule that a gift to take effect in the future is voidcan be avoided by finding a present gift of the right to the subjectmatter, with only the enjoyment postponed to the future.In the leading case of Innes v. Potter, 130 Minn. 320, 153 N.W.604 (1915), the donor delivered certain shares of stock to a thirdperson with directions to deliver them to the donee on the deathof the donor. The court held that even though the instrument post-poned enjoyment of the subject matter until after the death of thegrantor, it was not necessarily testamentary in character. The testwas held to depend upon the intent of the maker. If the makerintends that the instrument have no effect until after his death, thetransaction is testamentary and void; but if the intent is to transfersome present interest, the instrument is not a will and is irrevocable.The effect of such an interpretation is to reserve a life estate inthe donor without invalidating the donation. A significant numberof jurisdictions are in accord with the Innes case. Scrivens v. NorthEaston Say. Bank, 166 Mass. 255, 44 N.E. 251 (1896); Howard v.Hobles, 125 Md. 639, 94 At. 318 (1915); Payne v. Tobacco TradingCorp., 179 Va. 156, 18 S.E.2d 281 (1942)The West Virginia Supreme Court has applied a similar rule inregard to real property transactions. In Lauck v. Logan, 45 W. Va.251, 31 S.E. 986 (1898), the grantors delivered a deed to thegrantee, stipulating that the deed would be in full force and effectimmediately after the death of the grantor and no sooner. Thecourt found that this was a valid deed and not a testamentarypaper. The grantee, in effect, received a vested remainder whichwas to ripen into enjoyment on the death of the grantor. The courtstated that neither the belief of the maker as to the character ofthe instrument nor the type of language employed was necessarilycontrolling. In the final analysis the intention of the grantor was[Vol. 673Bean: Property--Cancellation of Note at Payee's Death Not TestamentaryDisseminated by The Research Repository @ WVU, 1964CASE COMMENTSheld to be decisive, and this had to be ascertained from all thesurrounding circumstances. In another West Virginia case, a fathergranted a tract of land to his daughter, specifying that the deed wasnot to take effect until after his death, even though the grantee wasallowed to make improvements on the land. The court found thatan interest passed to the daughter, subject to a life estate in thefather. Rust v. Commercial Coal & Coke Co., 92 W. Va. 457, 115S.E. 406 (1922).More recently the West Virginia Supreme Court has held that therule of the Lauck and Rust cases was binding. Ligett v. Rohr, 122W. Va. 166, 7 S.E.2d 867 (1948). In that case the grantor deededa certain tract of land to her children, providing that the deed wasnot to take effect until the death of the grantor. The majority ofthe court ruled that the deed created an immediate estate in thegrantee which would come into full enjoyment when the grantordied. Judge Kenna, in a dissenting opinion, stated that the con-veyance was an attempted testamentary disposition and that it wasapparent from the language used in the conveyance that the grantordid not intend for anything to vest in the grantee when the deedwas executed and delivered. Thus, the deed was not good as a willand therefore of no effect.Joint bank accounts are a common device used by persons in anattempt to arrange their property in such a manner that title to theirproperty will pass automatically upon the death of the owner withno need for an administration of his estate. Typically, an account isopened in the name of the depositor and another as co-depositor,or perhaps the account was originally opened as an individualaccount and is subsequently changed into a joint account. Becausethe money deposited is owned at the time of the deposit by thedepositor, the question is what effect does the deposit in the jointaccount have on the title to the funds.Many courts have considered the transaction as testamentary innature and governed by the law of wills, Bachmann v. Reardon, 138Conn. 665, 88 A.2d 391 (1952), while others have classified it asinvolving the law of gifts. Johnson v. Savings Inv. & Trust Co.,107 N.J. Eq. 547, 153 At. 382 (1931). Comparison of two cases inthis area reveals how the courts can reach different results on sub-stantially the same set of facts. In Tygard v. McComb, 54 Mo. App.85 (1893), a father deposited certain sums in a savings bank to the1964]4West Virginia Law Review, Vol. 67, Iss. 1 [1964], Art. 10https://researchrepository.wvu.edu/wvlr/vol67/iss1/10WEST VIRGINIA LAW REVIEWcredit of his minor daughters, retaining the passbook in his pos-session. During his life he treated the account as his own, andthere was evidence that he wanted his daughters to have the moneyin the event of his death. The court held that since the moneydeposited was subject to the father's control and was not intendedto vest in the children until his death, it was merely an attemptedtestamentary disposition. In Malone v. Walsh, 315 Mass. 484, 53N.E.2d 126 (1944), the decendent, during her lifetime, made threejoint deposits in her name and that of her brother. The decedentretained possession of the bank books at all times and made with-drawals for her own purposes, but none were made by her brother.The court held that the deposits had vested a present interest indecedent's brother as a joint tenant which would ripen into com-plete ownership and enjoyment in the event the decendent prede-ceased him.Many states have sustained the joint account as a valid gift bymodifying or abandoning some of the traditional common law re-quirements as expressed in Beaver v. Beaver, supra. In several jur-isdictions delivery of the passbook has been held to be unnecessaryon the theory that if either account holder may have the book, thenboth cannot, and the donor's retention of it does not defeat the gift.Commercial Trust Co. v. White, 99 N.J. Eq. 119, 132 Atl. 761(1926). It also has been held that the donor's retention of the rightto withdraw the deposit does not defeat the gift because the doneehas the same right. Burns v. Nolette, 83 N.H. 489, 144 Ad. 848(1929). In addition, a few courts have found intent to make agift unnecessary. Bark v. Mulich, 83 Colo. 518, 266 Pac. 1110(1928); Beach v. Holland, 172 Ore. 396, 142 P.2d 990 (1943).A number of states avoid the gift theory by considering the trans-action as a contract between the depositor, the bank and theco-depositor, creating rights enforceable by the co-depositor. Inre Estate of Mclllrath, 276 II. App. 408 (1934); Chadrow v. Kell-man, 378 Pa. 237, 106 A.2d 594 (1954) (dissenting opinion); Jones,The Use of Joint Bank Accounts as a Substitute for TestamentaryDispositions of Property, 17 U. Prrr. L. REv. 42 (1955). If thetransaction is considered a contract, it then becomes presentlyoperative. This negates the possibility of having the transactionattacked as testamentary in nature, and there are no requirementsof acceptance and delivery as in the law of gifts. The enforcementof the co-depositor's right involves no violation of the Statute of[Vol. 675Bean: Property--Cancellation of Note at Payee's Death Not TestamentaryDisseminated by The Research Repository @ WVU, 1964CASE COMMENTSWills, because the Statute is inapplicable to contracts. Castle v.Wightmar, 303 Mass. 74, 20 N.E.2d 436 (1939). The Virginia courttook a slightly different approach in regard to the joint accounttransaction. Deals Adm'r v. Merchants & Mechanics' Bank, 120 Va.297, 91 S.E. 135 (1917). In that case a decedent, during her life-time, deposited money in the bank to the joint account of herselfand her sister. It was held that the deposits created the relationof debtor and creditor between the bank and the depositors, andwhen the decedent died, the balance of the account belonged to thesister.In several jurisdictions the courts are able to rely on joint tenancystatutes designed to deal with joint bank accounts. The New Yorkcourt, in interpreting its joint tenancy statute, has developed thefollowing rule: As to money left in the account at the death ofthe depositor, there is a conclusive presumption that a joint tenancywas intended; but as to funds withdrawn prior to the death of thedepositor, the presumption is rebuttable. Such a withdrawal doesnot destroy the tenancy; instead, it only "opens the door" to compe-tent testimony that would show that no joint tenancy was intendedto be created. Bricker v. Krimer, 13 N.Y.2d 22, 191 N.E.2d 795, 241N.Y.S.2d 413 (1963). The New York statute is practically identicalto the West Virginia joint tenancy statute which provides:"fWhen a deposit is made by any person in the name of suchdepositor and another person and in form to be paid to either,or the survivor of them, such deposit, and any addition theretomade, by either such persons, upon making thereof, shall becomethe property of such persons as joint tenants.. . ." W. VA. CoDEch. 31, art. 8, § 23 (Michie 1961).While the purpose for the enactment of the West Virginia statutewas to protect bank institutions, it has been held to create propertyrights in the depositors. Lett v. Twentieth St. Bank, 138 W. Va.759, 77 S.E.2d 813 (1953); 66 W. VA. L. BEv. 252 (1964).A similar problem is also encountered in the area of trusts. Ifan intended trust is revocable throughout the lifetime of the de-positor, the question arises whether it is a testamentary trust andinvalid under the Statute of Wills. In the leading case of In reTotten, 179 N.Y. 112, 71 N.E. 748 (1904), it was held that a depositof money by the owner in his own name as trustee for another doesnot necessarily establish an irrevocable trust during the lifetime of1964]6West Virginia Law Review, Vol. 67, Iss. 1 [1964], Art. 10https://researchrepository.wvu.edu/wvlr/vol67/iss1/10WEST VIRGINIA LAW REVIEWthe depositor. Such a deposit was held to be "tentative trust",revocable at the will of the depositor. In the event the depositordies before the beneficiary without having revoked the trust, thepresumption arises that an absolute trust was created as to thebalance on hand at the death of the depositor. This "Totten trust"doctrine has been adopted elsewhere. Bollack v. Bollack, 169 Md.407, 182 Atl. 317 (1936); Walso v. Latterner, 140 Minn. 455, 168N.W. 353 (1918); In re Estate of Scanlon, 313 Pa. 424, 169 At. 106(1933); RESTATENmT, TRusTs § 65 (1930). Although not havingadopted the rule, California seems favorable to it. Kuck v. Raftery,117 Cal. App. 755, 4 P.2d 552 (1931). The New Jersey court, how-ever, has held that such an interpretation of the deposit wouldrender it testamentary and void. Nicklas v. Parker, 69 N.J. Eq.743, 61 Adt. 267 (1905).If the courts which approve the "Totten trust" doctrine intend toimply that no trust arises until the death of the depositor, it wouldappear that the trust is testamentary, since the deposior's death is acondition precedent to the creation of the trust. On the other hand,it would seem more reasonable to assume that a trust is created atthe time of deposit, even though it remains revocable in whole orin part by the depositor. Even so, it is hard to escape the fact thatthe depositor has complete control over the deposit, and that thetrust in substance appears to be testamentary. If the subject ofthe trust were property other than a savings account in the bank, thetrust clearly would be testamentary. Scott, Trusts and the Statuteof Wills, 43 HIRv. L. REv. 521 (1930). However, such a deviceoffers a convenient method of disposing of relatively small amountsof money without having to resort to probate proceedings; thus,there seems to be no strong policy against the creation of thesetrusts.It seems evident that the courts are becoming more liberal in sus-taining transactions which are apparently testamentary and void.In reaching the desired result the courts have employed a varietyof theories, ranging from the law of gifts to the law of contracts.The principal case appears to provide another example of thetendency to uphold such transactions.Ralph Judy Bean, Jr.[Vol. 677Bean: Property--Cancellation of Note at Payee's Death Not TestamentaryDisseminated by The Research Repository @ WVU, 1964

Property--Cancellation of Note at Payee\u27s Death Not Testamentary Gift

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Property--Cancellation of Note at Payee\u27s Death Not Testamentary Gift

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