The Lien, the Garnishee and the Cheque
At 09:00 a court garnishee order is served on a bank, attaching USD 30,000 standing to the credit of a customer's current account, which holds USD 42,000. At 09:20 the bank's own claim of USD 18,000 matures under an import bill because the borrower failed to retire a trust receipt; documents had been released against that trust receipt. At 09:40 a cheque for USD 25,000 in favour of a supplier is presented. The customer's director argues the bank has no lien because the account mandate contains no express charge, and demands the cheque be paid. The bank's general terms include a right of set-off for matured liabilities. The balance was USD 42,000 when the order was served.
1. Rank the competing claims and explain the effect of the garnishee order on the bank.
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A garnishee order attaches debts due from the bank to the customer at the moment of service. From 09:00 the bank holds the USD 42,000 to the order of the court up to USD 30,000; it cannot deal with that sum in a way that defeats the judgment creditor.
Critically, the bank cannot create a right of set-off after service. If it could, every garnishee would be defeated by a bank debiting its own claim.
So the timeline decides the ranking:
- Claims that had already matured and were capable of set-off before 09:00 rank ahead of the order.
- The bank's USD 18,000 claim matured at 09:20, after service. On these facts it cannot be set off against the attached balance to the prejudice of the judgment creditor.
The director is partly right and partly wrong. There is no express charge, so there is no contractual lien over the balance. But the bank's right of set-off under its general terms is separate from a lien, and it survives only to the extent it was exercisable before attachment.
2. Can the bank rely on a banker's lien over the account balance?
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No - and conflating the two concepts is the trap in this question.
- A banker's lien is a passive right over goods, documents and securities coming into the bank's hands in the ordinary course of banking, securing the customer's indebtedness. It does not generally attach to a credit balance on a current account.
- A right of set-off combines two money claims. It depends on the account terms and requires the bank's claim to be due and ascertained.
The trust receipt matters. Releasing documents against a trust receipt means the bank retained a proprietary or contractual claim over the goods or their proceeds. If the customer sold the goods and the proceeds are traceable, that is a separate route to recovery. If the proceeds were simply mixed into the current account balance before service, tracing becomes difficult and the bank falls back on the contractual set-off, which was not yet exercisable at 09:00.
3. What should the bank do with the USD 25,000 cheque presented at 09:40?
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The cheque cannot be paid out of the attached funds. Once served, the bank must not apply the attached balance in a way that defeats the order.
Options:
- Return the cheque unpaid, marked to reflect the garnishee/attachment, and notify the customer promptly so the supplier can be told.
- Do not "pay first and sort it out later": that would be a breach of the order and could expose the bank to contempt or liability to the judgment creditor.
Before returning it, check the facts:
- Was the balance actually USD 42,000 at 09:00, with no uncleared effects or prior holds?
- Did the bank have a matured, enforceable claim before 09:00 that could properly be set off?
- Does the order attach the whole balance or a specified sum, and does it permit the customer to operate the account above the attached amount?
If the order attaches USD 30,000 of a USD 42,000 balance, USD 12,000 remains unencumbered. A USD 25,000 cheque still cannot be paid in full, but the bank should confirm with the court or the judgment creditor whether the surplus can be applied. Document every step with timestamps - a disputed garnishee case is won or lost on the timeline.