Financial institutions and other entities that hold the property of their customers routinely find themselves in the middle of disputes between strangers to the firm. Often, these disputes involve competing claims by two or more parties as to entitlement to assets held by the institution, putting the company in doubt as to whom it should distribute the assets. As a result of these conflicting claims, the institution could be exposed to double or multiple liability if it pays the assets to the wrong party.
Consider, for example, the following hypothetical scenario: Bank XYZ holds a trust account valued at $500,000 in the name of the Smith Trust. According to Bank XYZ’s records, Mr. Smith is the sole trustee on the account, with no successor trustee listed. Mr. Smith passes away. Thereafter, Mr. Jones goes to Bank XYZ, presents documents purporting to show him as the successor trustee of the Smith Trust, and requests that the account be closed and a check be given to him in the amount of $500,000 for the benefit of the trust. While Bank XYZ is reviewing Mr. Jones’ paperwork, Ms. Alba goes to Bank XYZ, presents documents purporting to show her as the successor trustee of the Smith Trust, and makes the same demand for the money as Mr. Jones. Consequently, both Mr. Jones and Ms. Alba have advanced conflicting claims to the same assets held by Bank XYZ, which cannot determine which of the parties is the proper successor trustee and to whom it should deliver the assets. If Bank XYZ pays the wrong party, it may be exposed to double liability as it will have to make a second payment to the correct party.
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