Security Deposits with Utilities - Debts or Pledges

SMU Law Review Volume 21 | Issue 4 Article 15 1967 Security Deposits with Utilities - Debts or Pledges Hugh T. Blevins Follow this and additional works at: https://scholar.smu.edu/smulr Recommended Citation Hugh T. Blevins, Security Deposits with Utilities - Debts or Pledges, 21 Sw L.J. 857 (1967) https://scholar.smu.edu/smulr/vol21/iss4/15 This Case Note is brought to you for free and open access by the Law Journals at SMU Scholar. It has been accepted for inclusion in SMU Law Review by an authorized administrator of SMU Scholar. For more information, please visit http://digitalrepository.smu.edu. Security Deposits. With Utilities - Debts or Pledges? Following the general practice of utility companies, Central Power and Light Company of Corpus Christi requires from its customers a five dollar security deposit as a condition precedent to service. Although the money is not kept separate from other funds of the company, the amount is credited to the individual accounts of the customers. In accordance with both the civil' and penal statutes, interest is paid on the money. When service is terminated, the customer's account is settled, and the deposit, plus any interest, less deductions for any unpaid bills, is returned to him. Over a period of years the company accumulated a number of unclaimed and apparently abandoned deposits, which it treated as debts owed to its customers. After a deposit remained unclaimed for a period of five years, the company credited it to unearned income and paid taxes on it, relying upon the four-year statute of limitations for debts.' However, all deposits are returned upon demand. The state of Texas sought to escheat deposits more than seven years old as abandoned property, urging that the deposits were in the nature of pledges, and therefore the company's plea of limitations could not bar recovery by the state. The trial court found that the deposits were pledges and escheated to the state. Held, reversed: Customer security deposits with utilities are in the nature of debts owed by the company to its former customers, barred from enforcement by the general four-year statute of limitations on debts, and thus not subject to escheat claims by the state. Alternatively, even if the deposits are pledges, they are barred by laches if the former customers have failed to make demand within a reasonable time of the date of discontinuance of service and thus still not subject to escheat.4 Central Power & Light Co. v. State, 410 S.W.2d 18 (Tex. Civ. App. 1966) error ref. n.r.e. I. STATUTORY PROVISIONS Of principal importance in Central Power & Light Co. v. State is the characterization of security deposits as either debts or pledges as defined by the common law. Nevertheless, the court's discussion must be understood in the context of independent but interrelated statutes. Two Texas statutes relate specifically to the utility company practice 'TEx. REV. CIV. STAT. ANN. art. 1440 (1964). 'TEx. PEN. CODE art. 1054 (1964). aTEx. REV. CiV. STAT. ANN. art. 5527 (1964). ' Another holding of the court of civil appeals which will not be discussed in the body of the Note concerned certain unpaid dividends owed to persons whose last known addresses were out-ofstate. The state of Texas contended that they should escheat to the state of the debtor. Central Power and Light relied upon Texas v. New Jersey, 379 U.S. 674 (1965), where the United States Supreme Court held that the situs of a debt is in the creditor, and any escheat must be to the state of the creditor's last known address if that state has applicable escheat laws. (All of the last known addresses of the creditors to whom Central Power and Light owed dividends were in states having applicable escheat laws.) The state countered by arguing that no other state could get jurisdiction over the debtor to enforce payment, since Central Power and Light only did business in Texas. The argument seems plausible, but the same argument was rejected by the Supreme Court in denying a motion for rehearing in Texas v. New Jersey, 381 U.S. 931 (1965) (mem.). The court of civil appeals apparently was correct in holding for Central Power and Light on this issue. SOUTHWESTERN LAW JOURNAL [Vol. 21 of requiring a deposit as a condition precedent to service. Article 1440 requires utilities demanding security deposits to pay interest on them at the rate of six per cent per annum, and to return the deposits to their former customers, together with any unpaid interest, less any unpaid bills, when service is discontinued.' Article 1054 of the Penal Code provides a fine or imprisonment, or both, for anyone violating the terms of article 1440.6 The deposit is not a prepayment, and the company may discontinue service without resorting to the deposit any time a customer fails to make his payments.' Escheat of abandoned personal property by the state of Texas is governed by article 3272a.' The statute provides for escheat of unclaimed personal property, tangible or intangible, when the owner has been unknown for at least seven years. In order for property to be considered abandoned, the owner must assert no act of ownership during the period, and no will may be recorded or probated affecting the property.! The statute is custodial in nature," because the rightful owner or his heirs may, at any time, recover from the state the property or the proceeds from its sale." Corporations holding security deposits are specifically included within the statute's operation." There are two statutes of limitations in Texas relating to debts: the two-year statute applying to debts evidenced orally," and the four-year statute applying to debts evidenced in writing. 4 Ordinarily, however, unless expressly provided by statute, limitations may not be pleaded against an action by the state," including an action of escheat." Nevertheless, this may be avoided by pleading limitations against the claim which the state wishes to escheat. In Southern Pacific Transport Co. v. State" the state of Texas sought to escheat unpaid wages which were unclaimed for a period of over seven years. The company pleaded limitations. The court of civil appeals held that the state could only escheat whatever right the former 'TEX. REV. Civ. STAT. ANN. art. 1440 (1964). "TEX. PEN. CODE art. 1054 (1964). 7 Community Natural Gas Co. v. Moss, 55 S.W.2d 224 (Tex. Civ. App. 1932). See Annot., 43 A.L.R.2d 1262 (1955). 'TEX. REV. Civ. STAT. ANN. art. 3272a, § 1 (1964). 9 Id. 0Under a custodial escheat statute, the state only takes possession or defeasible title to the escheated property. The state has the right to use the property, but when the rightful owner appears he may recover the property or the proceeds from the sale of it. The time within which the rightful owner must appear is limited in some states, but not in Texas, e.g., The Abandoned Property Act, ARK. STAT. ANN. § 50-601 (1949). Under a true escheat statute, the state takes absolute title to the escheated pro (...truncated)