In Re Mahan & Rowsey, Inc.

817 F.2d 682 (10th Cir. 1987)

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Nature of the Case

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Facts

P and D entered into an oil well-operating agreement in which D was to bill P for his proportionate share of the drilling and completion costs of the well. Over a period of months, through D's negligence, P was billed for and paid $42,082.65 in excess of his proper share of those costs. D deposited the overpayments into two separate bank accounts from which it made withdrawals until the advent of bankruptcy. The two accounts had a remaining balance of $11,126.71. Subsequent to the filing of the bankruptcy petition, the two accounts were closed, and the funds were transferred to a general operating account for the benefit of D's bankruptcy estate. D subsequently made deposits to that account. P filed an action in the bankruptcy court to recover the full amount of his overpayment from the sums on deposit in the operating account. The court held the operating agreement between the parties was a 'trustee type relationship' and therefore the overpayments were held by D in trust for P. The court entered judgment for P in the full amount of the overpayment. On appeal, the district court affirmed the bankruptcy court's determination that a trust was imposed upon the overpayment, but reversed the judgment on the full amount. The court held that when the overpayments were commingled in accounts that were drawn upon, the trust beneficiary's recovery was limited to the lowest balance between the time of the deposit of the overpayments and the filing of the Chapter 11 petition.