The Operation of Garnishee Order in Banking

Garnishment is the legal procedure by which a judgement creditor (A) obtains the control of funds that are in the hand of a third party (B) who owes money to the debtor (C). In this case, C owes A some money. There are some funds in the hand or custody of B, which rightfully belong to C. With garnishment, the court is asking B to release C’s money in his hands to A.

A garnishee order is an order given by a court to attach the money of a judgement debtor, which is in the hand of third party, the effect of which the third party is prevented from paying the until directives are given by the court on how the money is going to be applied. This order is obtained by a judgement creditor against the judgement debtor. The third party is the garnishee i.e. the one being commanded. When this order is applied in banking operations, the bank becomes the third party. However, the judgement creditor must swear to the declaration.

As a preliminary step, the court will issue a garnishee order nisi immediately an application for the issuance of a garnishee order is filed. This is a temporary injunction under which the bank is directed not to part with the money attached without directives from the court. The affidavit sworn to when filling the application must state:

      I.        the judgement debtor;

    II.        the amount outstanding;

   III.        that the bank to be served is indebted to the judgement creditor;

  IV.        the branch of the bank where the judgement debtor maintains his account.

The court will then issue the garnishee nisi ex parte i.e. without hearing the plea of, even requiring attendance in court of either the debtor or the creditor, as much as the court is satisfied that the applicant stands to be prejudiced if the order is not issued.

A garnishee order nisi is a warning. It is not an order for the bank to pay. Its effect is to freeze whatever sums are standing to the credit of the customer at the moment when the order is received. When the court makes the order absolute, the bank must pay to the creditor whatever amount the order specifies and may debit the customer’s account with the payment. The payment according to the garnishee order absolute must be made though the court to the judgement creditor. The payment must be the amount of the order plus the cost, or available balance on the customer’s account if less than the order.

A garnishee order may be limited or unlimited. It is limited when it indicates the actual amount to be attached plus the cost such that the bank can know from the order plus the amount plus costs. The order is unlimited if no amount is specified. In this case, the bank must block the entire balance on the customer’s account until the court gives further directives. If the customer knows that his credit balance exceeds the debt in question, he should press the court to convert the unlimited order to a limited order. However, for a limited order where the customer’s credit balance exceeds the debt, the bank can place the amount on the garnishee order in a suspense account and allow the customer to run his account normally.

We need to note the following points as rules in respect of bank accounts that would be attached by a garnishee order:

      i.        The general principle is that an unlimited garnishee order attaches the cleared net sum standing to the customer’s credit and those that are available to him at the bank at the precise moment when the order is received.

    ii.        The unutilised amount of an overdraft limit is attached.

   iii.        The bank is entitled to exercise its right of set-off, if any. In this case, loan already due for repayment and demanded for may be deducted.

   iv.        As regards future credits, the principle is that any credit which has not been cleared to the customer’s account at the time when the order is received is not attached.

    v.        A garnishee order is issued to one party in a joint account does not attach the joint account. In the same manner, the order on one or some of the partners in a partnership business does not attach the partnership account.

   vi.        If the garnishee order names two judgement debtors who are joint account holders, it will however attach the joint account and individual accounts of the joint parties. In partnership, the order attaches the partnership account. It also attaches personal accounts of the partners. It attaches the account of anyone of the partners for the whole sum of the order because of the Principle of Joint and Several Liability.

  vii.        Money held in overseas branches of a bank is not attached. This is because such money is outside the jurisdiction of the court issuing the order. Money held in domiciliary accounts is however attached.

viii.        The order will attach cash paid in at other branches of the bank. This affect cash paid in before the order was served.

   ix.        Money held in a suspense account of a bank for the judgement debtor is attached.

    x.        Deposit account will be attached regardless of the maturity condition, submission of deposit receipt issued to the customer or any other notice requirements. This is because a garnishee order made absolutely cancels such receipt.

   xi.        The order must correctly identify the judgement creditor; if not, the bank will be entitled to ignore it as this can lead to a wrongful dishonour of a cheque drawn on an account that was not intended to be attached. The bank may also ignore corrections made on the order by a party other than the court.

  xii.        The order attaches money held on behalf of another party or on trust as much as the money is held to the credit of the customer (judgement debtor) and the customer (judgement debtor) can withdraw it. (Plunkett Vs Barclays bank Ltd. 1936). However, a trust account so attached can be protected if the beneficiary can prove his interest as in Harrods Ltd. Vs Tester (1937).

xiii.        If a bank confirmed a cheque good for payment if presented, but before the actual physical presentation of the cheque, a garnishee order is served, the paying bank cannot debit the cheque to the account. (Nigerian Bills of Exchange Act, 1990).

xiv.        When a bank issued its own instrument to pay a cheque that was specially presented to it before the receipt of the garnishee order, the amount of the cheque is deductible in calculating the balance to be attached even though not yet debited to the account.

  xv.        Money held in an account opened under a trading name is attached as much as the name attached is the sole owner of the business. This rule does not applied to incorporated companies.

xvi.        The order protects ascertained debts only. It gives no protection to contingent liability.

xvii.        Money which has been conclusively or irrevocably paid from the account will not be attached provided the payment/or transfer of such money has been completed as at the time of serving the order. It was decided in Rekstin Vs Sevro Sibirsko (1933) that a garnishee order revokes an instruction by a customer to transfer fund despite the completion of book entries as much as the transfer has not been informed.  

In conclusion, for an account that is in debit, nothing is attached and the bank must advise the court immediately.                                                   

Published in Ondo State Banker – Journal of the Chartered Institute of Bankers of Nigeria, Akure Branch. Vol 1 No1, October 2004 Pg 13)