Garnishment and Lien Priority: Who gets the funds in the garnished account in case of multiple competing claims?

   
THE NATURE OF GARNISHMENT PROCEEDINGS - 3-PARTY ACTION
 

A garnishment proceeding involves at least three parties: (1) the plaintiff (also known as the garnishor or creditor); (2) the defendant or debtor; and (3) the garnishee. The garnishee is a third party who owes a debt to or holds property of the debtor. The plaintiff or garnishor is a creditor of the debtor and requests the court to issue the writ of garnishment to the garnishee.
  
Garnishment is a statutory proceeding whereby property of the debtor that is in possession of the garnishee is applied to the payment of the debt owed by the debtor to the garnishor. See Tex. Civ. Prac. & Rem. Code Ann. §§ 63.001-.008 (West 2008); Tex. R. Civ. P. 657-79; Thompson v. Harco Nat. Ins. Co., 997 S.W.2d 607, 611 (Tex. App.-Dallas 1998, pet. denied), overruled in part on other grounds by John v. Marshall Health Servs., Inc., 58 S.W.3d 738, 741 (Tex. 2001) (per curiam).

      

The garnishor is subrogated to the rights of the debtor against the garnishee and may enforce, against the garnishee, any rights the debtor could have enforced had he sued the garnishee directly. See Thompson, 997 S.W.2d at 611 (citing Beggs v. Fite, 106 S.W.2d 1039, 1042 (Tex. 1937)). The garnishor, however, cannot acquire any greater rights against the garnishee than the debtor, himself, possesses. See id. (citing Phoenix Ins. Co. v. Willis, 6 S.W. 825, 830 (Tex. 1888)).

    

Where, as here, the garnishee's answer is controverted the case is then tried as other cases and a judgment will be issued according to the results of the trial. See Tex. R. Civ. P. 668, 674.
  
The primary issue in a garnishment suit is whether the garnishee is indebted to, or has in its possession effects belonging to the debtor. See Buckeye Ret. Co. v. Bank of Am., N.A., 239 S.W.3d 394, 399 (Tex. App.-Dallas 2007, no pet.); Putman Putman, Inc. v. Capitol Warehouse, Inc., 775 S.W.2d 460, 463 (Tex. App.-Austin 1989, writ denied). The burden is on the garnishor to establish the amount of the debt owed to the debtor or the value of the property held by the garnishee. “If the garnishor's proof fails, he can of course recover nothing.” Putman, 775 S.W.2d at 463 (citations omitted).

   

Garnishment proceedings often involve competing claims to property that must be resolved by applying rules of lien priority. The general rule is that in a contest over rights or interests in property, the party that is first in time is first in right. See AMC Mortg. Services, Inc. v. Watts, 260 S.W.3d 582, 585 (Tex. App.-Dallas 2008, no pet.); World Help v. Leisure Lifestyles, Inc., 977 S.W.2d 662, 668 (Tex. App.-Fort Worth 1998, pet. denied). Rights under a writ of garnishment are determined by priority in time, which itself is determined by service of the writ. Small Bus. Inv. Co. v. Champion Int'l Corp., 619 S.W.2d 28, 30 (Tex. App.-Houston [1st Dist.] 1981, no writ). Service of the writ on the garnishee fixes a lien on the debtor's property or debts due him, “subject to prior valid rights and liens against such property or debt.” Hubbell, Slack & Co. v. Farmers' Union Cotton Co., 196 S.W. 681, 684 (Tex. Civ. App.-Beaumont 1917, writ ref'd) (quoting Cyclopedia of Law and Procedure) (emphasis added); United States v. Standard Brass & Mfg. Co., 266 S.W.2d 407, 408 (Tex. Civ. App.-Beaumont 1954, no writ). In garnishment proceedings, allowable claims that are prior in time are prior in right of payment. See Frankfurt's Tex. Inv. Corp. v. Trinity Sav. & Loan Ass'n, 414 S.W.2d 190, 192 (Tex. Civ. App.-Dallas 1967, writ ref'd n.r.e.).

  

SOURCE:  DALLAS COURT OF APPEALS –NATIONAL CITY BANK, A SUBSIDIARY OF NATIONAL CITY BANK CORPORATION, A DELAWARE CORPORATION TEXAS CAPITAL BANK, N.A., A NATIONAL BANKING ASSOCIATION, No. 05-10-00028-CV – 11/23/11

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