In re Goodson Steel Corporation

• Decision Date: 28 January 1974
• Docket Number: No. 73-1920.,73-1920.
• Citation: 488 F.2d 776
• Parties: In the Matter of GOODSON STEEL CORPORATION, Bankrupt. REPUBLIC NATIONAL BANK OF HOUSTON, Appellant, v. Myron M. SHEINFELD, Trustee for Goodson Steel Corporation, Bankrupt, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

488 F.2d 776 (1974)

In the Matter of GOODSON STEEL CORPORATION, Bankrupt.

REPUBLIC NATIONAL BANK OF HOUSTON, Appellant, v. Myron M. SHEINFELD, Trustee for Goodson Steel Corporation, Bankrupt, Appellee.

No. 73-1920.

United States Court of Appeals, Fifth Circuit.

January 28, 1974.

Daniel S. Trachtenberg, Clarence Mayer, Houston, Tex., for appellant.

Rey Stroube, Houston, Tex., for appellees.

Before GODBOLD, DYER and GEE, Circuit Judges.

DYER, Circuit Judge:

Republic National Bank of Houston appeals from an order of the district court, which, on a petition for review, affirmed an order of the Referee in bankruptcy directing the bank to turn over and deliver to the trustee in bankruptcy the sum of $5,160.19. This amount was on deposit with the bank in a Payroll Account of the bankrupt, Goodson Steel Corporation, and had been set off by the bank against Goodson's past due note. We reverse and remand for further consideration of the unresolved factual dispute concerning the priority in time of the presentation to the bank of the bankrupt's check for $1,935.00 vis-a-vis the bank's set off. We reverse and render as to the other funds set off by the bank.

Prior to the adjudication of Goodson as a bankrupt it conducted its banking affairs with Republic. The corporation maintained two accounts, one undesignated and the other designated "Payroll Account." On June 20, 1968, the Payroll Account showed a balance of $5,160.19. Sometime on the same date Goodson mailed its check to the bank in the amount of $1,935.00, drawn on the Payroll Account naming the bank as payee. The check was accompanied by a federal tax deposit form and was to be deposited in a treasury tax and loan account for withheld income and FICA taxes for the two week period of June 1 to June 15, 1968. Republic's records indicate that the check was processed on June 24, 1968, and stamped "Refer to maker" on the back. Republic retained possession of the check.

During this time Goodson was delinquent on a large promissory note due on June 5, 1968 and owed a substantial amount to the bank. After unsuccessful efforts to resolve this delinquency with Goodson, Republic, on June 22, 1968, exercised its right of set off against both the undesignated and the Payroll Accounts and applied the balances against the past due note. Consequently, Goodson's check for $1,935.00, drawn on the Payroll Account and processed on June 24, 1968, was not honored.

The trustee subsequently made application for, and the Referee issued, an order requiring Republic to show cause why it should not turn over to the trustee the sum of $1,935.00. After a hearing the Referee entered an order requiring Republic to turn over $5,160.19, the entire amount on deposit in the Payroll Account. Republic seasonably filed a petition for review which was, in due course, denied by the district court and this appeal was taken.

The thrust of Republic's appeal is that the Payroll Account was not a trust deposit or special account that deprived the bank of its set off rights and that in any event the relief granted extended beyond the scope of the pleadings and the evidence. The trustee responds that the Referee's finding of fact, that Republic knew that the Payroll Account was a special account because the only checks paid from it were payroll checks and checks drawn on it for payment of taxes, was not clearly erroneous. Further, the trustee contends that the Referee applied the proper legal standard in concluding that the Payroll Account was a trust deposit within the purview of 26 U.S.C.A. § 7501(a) because the funds in it were withheld from Republic's employees to cover taxes.

The record supports the trustee's assertion that: multiple accounts were set up by Goodson at Republic; one such account was designated a Payroll Account; funds from this account were used to meet the payroll of the employees; funds from this account were used to pay withholding and FICA taxes; and in connection with the check drawn for payment of taxes, federal deposit tax forms were received by Republic from Goodson.

On the other side of the coin there was no evidence of a specific agreement, express or implied, by which the bank assumed the position of trustee of the funds in the Payroll Account. Republic could not have dishonored a check drawn on this account merely because the check was for a purpose other than to pay an employee or to pay taxes. For aught that appears in the record, the total funds in the Payroll Account could have been withdrawn by Goodson at any time for any purpose. As long as this account had a credit balance Goodson could use the funds in its regular course of business exactly the same as it did with other checking accounts.

First we consider whether the designation Payroll Account and the circumstances under which it was used were sufficient to restrict its balance and thus prevent it from being used as a set off. In making this determination we start with the premise that "In the turnover proceedings the Trustee carries the burden of proof to prove his case by clear and convincing evidence. Maggio v. Zeitz, 333 U.S. 56, 64, 68 S.Ct. 401, 92 L.Ed. 476 (1948); Oriel v. Russell, 278 U.S. 358, 362, 49 S.Ct. 173, 73 L.Ed. 419 (1928); Barry v. Crancer, 192 F.2d 939 (8 Cir. 1952)", First National Bank of Clinton v. Julian, 8 Cir. 1967, 383 F.2d 329, 333, and that the issue to be decided is a matter of federal law, "with an interested eye" toward the Texas decisions. See In re A. M. Townson & Co., 3 Cir. 1960, 283 F.2d 449, 452.

The law of Texas with respect to general and special deposits was clearly explicated in Hudnall v. Tyler Bank & Trust Co., 1970, 458 S.W.2d 183, in which the Supreme Court of Texas said:

Neither the Texas Banking Code of 1943, the Uniform Commercial Code, nor other Texas statute appears to treat the subject of general and special deposits in banks. Certain rules of law, however, have long been established:

When money or its equivalent is deposited in a bank without any special agreement, the law implies that it is to be mingled with the other funds of the bank, the relation of debtor and creditor is created between the bank and the depositor, and the deposit is general. In such a transaction the bank becomes the owner of the fund. When, on the other hand, money or its equivalent is so deposited with an accompanying agreement that the identical thing deposited shall be returned, or that the same shall be paid out for a specific purpose, the relation thus created is not that of debtor and creditor. Such a transaction is a special deposit, and the bank is liable only as bailee. In such a case the fund is a trust fund, the bank acquires no title thereto, and is a mere trustee for the safe-keeping, return, or disbursement of the fund, according to the

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