Unclaimed property law compliance can be challenging for even the most savvy company. All fifty states and the District of Columbia have unclaimed property laws which require any company holding property owed to another ("Holder") to report and remit unclaimed property in every state in which it holds property. Under unclaimed property law, the requirement to report and remit property is governed by the law of the True Owner’s domicile1. For example, the Holder issues checks to a True Owner located in Texas.

Even if the Holder does not do business in Texas, it must report to Texas any unclaimed property whose True Owner’s last address is in Texas. Property must be reported to the state once, under the state’s law, it is presumed abandoned. All states provide time periods, called abandonment periods, that specify when property is presumed abandoned and must be reported to the state. Abandonment periods for checks, credit memos, credit balances and drafts range generally from three to five years. If the True Owner of the property fails to negotiate the instrument or otherwise claim the property within that period, the Holder is required to report and remit the property to the correct state.

Property for which Holder has a last-known address for the True Owner is required to be reported to the state of the True Owner’s last address. Property for which the Holder has no address for the True Owner must be reported to Holder’s state of incorporation. These are known as the unclaimed property law rules of priority. For purposes of this article, I am assuming that the Holder is incorporated in Delaware.

A Company Cannot Avoid Unclaimed Property Law By Including In Its Contracts A Provision That The Property Reverts To The Company After A Period Of Time

A holder cannot avoid unclaimed property laws by creating a "private escheat;" i.e., the Holder cannot trump states’ rights to unclaimed property by including in its contracts a provision specifying that the property reverts to the Holder after a period of time. See State v. Jefferson Lake Sulfur Company, 178 A.2d 329 (N.J. 1962), Screen Actors Guild, Inc. v. Cory, 91 Cal. App.3d 111 (Calif. Ct. App. 1979).

In Jefferson Lake Sulfur Company, four months after New Jersey enacted an unclaimed property law, Jefferson Lake Sulfur Company amended its certificate of incorporation to provide that any dividend or stock issued by the company reverted to the company if unclaimed by the owner. The Supreme Court of New Jersey held that Jefferson Lake Sulfur Company could not exempt its dividends and stock from claims by New Jersey under its unclaimed property law by amending its certificate of incorporation because it violated the basic public policy underlying unclaimed property law – that the unclaimed funds be used for the good of all citizens. Id. at 336.

Likewise, in Screen Actors Guild, the California Court of Appeals invalidated a bylaw provision that stated that residual payments not claimed by the performer within six years reverted to the Guild. Id. at 113. The court held the bylaw provision:

Void as a private escheat law obviously designed to frustrate operation of the [Unclaimed Property Law]

* * * *

Moreover, the [Unclaimed Property Law], as a law established for a public reason, cannot be contravened by a private agreement, which is what [the Guild’s] bylaw is.

Id. at 115-116.
This principle is codified by thirty states though provisions in their unclaimed property law that provide that the expiration of a statute of limitations pursuant to a contract provision does not prevent the property from being presumed abandoned.2 For example, Delaware law states:

Any provision in a certificate of incorporation, by law, trust agreement, contract or any other writing regulating the relationships between an owner and a holder, relating to property . . . which provides that upon the owner’s failure to act or make a claim regarding property in possession of the holder, that such property reverts to or becomes the property of the holder, in contravention of this chapter, shall be void and unenforceable.

Del. Code Ann. Tit. 12 § 1210.
The 1995 Uniform Unclaimed Property Act (the "Act") is a model act promulgated by the National Conference of Commissioners on Uniform State Laws. The Act was intended to minimize differences in unclaimed property laws from one state to another and many states have enacted it. The Act also includes a provision prohibiting companies from creating a private right of escheat. § 19(a) of the Act provides:

The expiration . . .of a period of limitation on the owner’s right to receive or recover property, whether specified by contract, statute, or court order, does not preclude the property from being presumed abandoned . . .

Thus, a Holder cannot by a provision in its terms and conditions to its customers exclude property from unclaimed property law.

Footnotes

1. The term "True Owner" will be used in this report to mean, inter alia,

  • the vendor to which the Holder may owe a credit balance, and
  • suppliers of the Holder to which checks were issued and never cashed by the supplier, and
  • all others with which the Holder has accounts payable outstanding on its records.

2. The states are Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Maine, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Utah, Washington, West Virginia, Wisconsin and Wyoming.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.