In re Overton

Citations: 169 B.R. 196; 1994 Bankr. LEXIS 992Docket: Bankruptcy No. BK93-41104

Court: United States Bankruptcy Court, D. Nebraska; June 21, 1994; Us Bankruptcy; United States Bankruptcy Court

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The case involves a dispute over the ownership of proceeds from certificates of deposit (CDs) held jointly by the debtor, Brenda Overton (also known as Brenda Betts), and her father, Donald Betts, along with her brother, Brian Betts. The debtor has filed a Motion for Turnover of Property, seeking the court to order the trustee to surrender the proceeds of these CDs to her father, the sole contributor of the funds used to purchase them.

At the commencement of the bankruptcy case, Brenda Overton was a joint owner of two CDs, each valued at approximately $21,000, issued by First Federal of Lincoln. The joint ownership was structured as joint tenants with rights of survivorship. The contractual terms specified that any funds contributed by any owner were deemed a gift to the other owners in proportion to their interest in the account, and that any legal orders would attach to the funds held in the account.

Brenda Overton did not contribute any money towards the CDs; the funds were sourced solely from her father, who used life insurance and workmen’s compensation proceeds. Initially, Donald Betts held a certificate in his name, which was later canceled at the bank's request to create two new joint CDs when loans were secured using the original CD as collateral—one for Brenda Overton and one for Brian Betts.

Upon Brenda Overton's filing for bankruptcy, the trustee claimed ownership of both certificates, prompting the current motion for turnover by the debtor. The Bankruptcy Judge has concluded that the motion should be granted, affirming the ownership claim of the funds by Donald Betts.

Both loans secured by the certificates of deposit matured after the bankruptcy petition was filed, and neither Brenda Overton nor her brother, Brian Betts, repaid the Bank. The Bank secured relief from the automatic stay to offset the funds from the certificates against the debts owed by the debtors, remitting $21,743.18 total to the trustee. The debtor claims the remaining proceeds should be returned to Donald Betts, asserting he is the sole contributor to the deposits. The discussion reveals that the agreement between the Bank and the depositors does not determine their inter se rights and is not enforceable by the bankruptcy trustee as a third-party beneficiary. Under Nebraska law (Neb. Rev. Stat. 30-2722(b)), accounts belong to contributors in proportion to their contributions, absent clear evidence of different intent. Donald Betts contributed all funds, but the trustee argues the joint account agreement implies joint ownership, allowing creditors to access all funds for debts. However, the court finds this interpretation inequitable and not supported by Nebraska law, which delineates the rights of financial institutions from those of depositors. Contract provisions protecting financial institutions do not govern depositor rights inter se or their creditors.

The case involves the ownership of funds in certificates of deposit held by Donald Betts, Brenda Overton, and Brian Betts, with the court assessing the intent of the parties regarding ownership. Donald Betts contributed all funds and originally held the certificate of deposit in his name, later pledging it as collateral for loans for his children. The bank required him to purchase new certificates in all three names, but he did not intend to gift ownership of the funds to his children. According to Nebraska Revised Statute 30-2722(b), ownership is based on net contributions unless otherwise intended, and since Betts contributed all the funds, he retains sole ownership of the remaining balance.

The trustee argues that even if Overton lacks ownership, the funds could be included in the bankruptcy estate under § 541(a)(3) if Betts' and Brian Betts' interests can be avoided under § 544 and § 550 of the Bankruptcy Code in a separate proceeding. Under § 544, the trustee acts as a hypothetical lien creditor who could potentially attach the certificates on the bankruptcy date, which would allow avoidance of Betts' and Brian Betts' interests if a creditor could claim priority. The bank's agreement states that any legal orders against one account holder could attach all funds, but it remains unclear whether Overton's creditors or the trustee can enforce this against Betts' and Brian Betts' interests. Consequently, the motion for turnover of the funds is to be denied at this time.

The trustee and creditors of Brenda Overton cannot enforce the agreement between the Bank and the depositors, as they do not qualify as intended third-party beneficiaries. They are deemed incidental beneficiaries, which prohibits the trustee from enforcing the contract's provisions regarding ownership. To establish the right to sue as an intended beneficiary, a party must demonstrate that enforcement aligns with the parties' intent, and either that the performance will satisfy a monetary obligation or that the promisee intended to benefit the beneficiary. These criteria are not met in this case. The agreement's intent was to protect the Bank from liability, and enforcement by lien creditors is neither appropriate nor necessary for this purpose. The depositors are the promisors, having agreed to allow the Bank to attach funds regardless of ownership upon a legal order, and the Bank, as promisee, had no present monetary obligations to lien creditors at the contract's inception. There is no evidence that the Bank intended to benefit the trustee or lien creditors; its sole aim was to shield itself from liability. Nebraska law requires that for non-parties to enforce an agreement, their rights must be explicitly contemplated by the contracting parties. However, existing case law indicates that mere reference to a party does not grant them beneficiary status, as seen in the Alder case, which illustrates that intent to benefit is critical for enforcement rights.

In Alder, a contractor failed to obtain a performance bond, resulting in defective work, leading a partnership to sue the lender based on alleged obligations under agreements with the SBA. The Nebraska Supreme Court ruled that the partnership could not enforce the agreement as a third-party beneficiary since there was no evidence it aimed to benefit the partnership, only to protect the SBA. In a similar case, the agreement between the Bank and depositors was found to similarly protect the Bank, limiting its liability without intent to benefit the depositors' creditors. Consequently, the trustee, acting as a lien creditor, could not enforce provisions allowing the Bank to honor legal orders against the certificates of deposit, meaning the interests of the father and brother in the proceeds could not be avoided. The ownership of the proceeds was determined by the net contribution rule, granting sole ownership to Donald Betts, the father who contributed all funds. As a result, the proceeds are not part of the bankruptcy estate, and the Motion for Turnover is granted, requiring the trustee to deliver the proceeds to Donald Betts within 21 days.