Espousing Easier Escheat

Each year billions of dollars' worth of property is abandoned all over the U.S. When that property is something as tangible as buildings or land, there is no question about who takes it over.

The state in which it is located gets it through "escheat," a feudal doctrine by which the land of a man who died without heirs reverted to the original grantor, or lord of the manor. But escheat (from the Latin ex cadere, to fall out) raises prickly problems with such abandoned intangible property as unclaimed checks because the debts involved have no one physical location. Which state is entitled to escheat a debt owed by a company incorporated in New Jersey, with main offices in Pennsylvania, to a person who once lived in Texas but whose last known address was in Florida? 4-c- Problem. Last week, in a Texas suit involving three other states,*the Supreme Court issued a milestone escheat rule that finally made sense out of chaos. At issue was $26,461.65, mainly in unclaimed checks (including one for 4-c-), that Sun Oil Co. has owed to 1,730 small creditors for as long as 40 years. The decision will ultimately affect the country's $15 billion of abandoned intangibles, which are growing at the rate of $1 billion a year.

Texas claimed the Sun Oil money because the debts are either on the books of Sun's two Texas offices, or are owed to persons whose last known addresses were in Texas. New Jersey claimed it because Sun is incorporated in that state. Pennsylvania claimed it because Sun's main offices are in that state.

Florida said it should get whatever was owed to debtors whose last known addresses were in Florida. As for Sun, all it wanted was freedom from double liability, assurance that it would not have to pay the same debt to more than one state.

Fair Formula. Speaking for the court, Justice Hugo Black rejected Texas' claim as the state having the most "contacts" with the debt. To follow that rule would saddle the court with endless case-by-case litigation, said Black. New Jersey's claim as the debtor's domicile would "too greatly exalt a minor factor," while Pennsylvania's main-office argument might force the court to tot up the space or staff in one branch office after another.

Black adopted Florida's suggestion that "since a debt is property of the creditor, not of the debtor, fairness among the states requires that the right and power to escheat the debt should be accorded to the state of the creditor's last known address." All this takes is a look at the company books. Though "not entirely one of logic," said Black, Florida's escheat rule is easiest to apply and will save countless court fights in the future.

*The Constitution's Article III gives the court "original" (initial) jurisdiction over all cases between states. Only last week, the court permitted Nebraska to sue Iowa over 15,000 acres that Nebraska claimed Iowa stole along their mutual boundary, the Missouri River.

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