National City Bank v. Texas Capital Bank, N.A.
353 S.W.3d 581
Tex. App.2011Background
- National City Bank held a $1.2 million secured line of credit from Debtor, secured by a security agreement extending to all assets in Debtor's investment account and providing National City control of the collateral.
- Texas Capital Bank obtained a default judgment against Debtor for over $500,000 and served a writ of garnishment on National City and Debtor on October 31, 2008.
- At service, Debtor's investment account contained over $1.267 million; Debtor owed more than $1.174 million to National City on the line of credit.
- National City liquidated the investment account on November 13, 2008, applying about $1.174 million to its debt and transferring approximately $89,000 to Debtor, after notifying an Amended Answer to the garnishment.
- The trial court granted Texas Capital summary judgment; National City appeals contending its prior lien priority over the garnishment requires denying Texas Capital's recovery beyond the $89,000.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether National City had priority lien over garnishment | National City had a prior security interest in the account assets. | Texas Capital argues garnishment priority should control position after service. | National City had superior lien; Texas Capital cannot prevail beyond $89,748.12. |
| Whether National City's payment of funds to Debtor after service violated the writ | Payment of the $89,000 to Debtor was void under §63.003 but the remaining payment to satisfy the line of credit was proper as a security-interest enforcement. | Garnishment relief should not be prejudiced by National City's previous payments; National City violated the writ. | Only the $89,000 payment was void; remaining payments were subject to National City's superior lien. |
| Whether garnishment status can trump pre-existing security interests | Garnishment controls the debtor's assets against liens. | Garnishment is subject to prior liens and cannot displace them. | Garnishment rights are subordinate to National City's pre-existing lien; garnishor cannot claim greater rights than the debtor. |
| What is the proper relief on appeal | Texas Capital is entitled to the full judgment amount subject to priority rules. | National City should be awarded summary judgment; Texas Capital recover only the void $89,000 amount. | Modify judgment: deny Texas Capital's motion, grant National City's cross-motion, and render judgment for Texas Capital in the amount of $89,748.12. |
Key Cases Cited
- Bank One, Texas, N.A. v. Sunbelt Sav., F.S.B., 824 S.W.2d 557 (Tex. 1992) (garnishee may rely on deposit agreements to determine debtor-debtor relationships)
- Beggs v. Fite, 106 S.W.2d 1039 (Tex. 1937) (garnishment must conform to statutory requirements)
- Hubbell, Slack & Co. v. Farmers' Union Cotton Co., 196 S.W.2d 681 (Tex.Civ.App.-Beaumont 1917) (writ subjects property to prior valid rights and liens)
- Caton, San Felipe Nat. Bank v. Caton, 668 S.W.2d 804 (Tex.App.-Houston [14th Dist.] 1984) (garnishment priority and ownership issues when title disputed)
- Thompson v. Fulton Bag & Cotton Mills, 286 S.W.2d 411 (Tex. 1956) (jurisdiction to determine ownership of funds held by garnishee)
- Thompson v. Harco Nat. Ins. Co., 997 S.W.2d 607 (Tex.App.-Dallas 1998) (garnishor's burden to show indebtedness or possession of debtor's assets)
- Frankfurt's Tex. Inv. Corp. v. Trinity Sav. & Loan Ass'n, 414 S.W.2d 190 (Tex.Civ.App.-Dallas 1967) (priority in time governs rights in contested property in garnishment)
- Bank One, Tex., N.A. v. Sunbelt Sav., F.S.B., 824 S.W.2d 557 (Tex. 1992) (bank garnishee may rely on contracts to determine how funds are owed)