## Facts

- Retha Frierson obtained a federal money judgment against United Farm Agency, Inc. (UFA) in the Eastern District of California.
- Frierson later sought to collect in Missouri by registering (and enforcing) the judgment in the U.S. District Court for the Western District of Missouri.
- UFA maintained deposit accounts at three Missouri banks: The Merchants Bank (Merchants), Centerre Bank, and Country Club Bank.
- Merchants was also UFA’s lender. UFA had signed loan documents giving Merchants rights in UFA’s property, and Merchants claimed a prior perfected security interest that reached UFA’s funds on deposit.
- UFA defaulted under its obligations to Merchants. Merchants did not foreclose on collateral or otherwise proceed with Article 9 enforcement before Frierson began execution efforts.
- To execute on her judgment, Frierson served Missouri garnishment summonses on all three banks.
- The banks’ interrogatory answers showed UFA had funds on deposit at each bank, with the largest balance at Merchants.
- UFA moved to quash the garnishments. Merchants intervened and objected to turnover of the Merchants-account funds, asserting (a) contractual and common-law setoff rights against UFA’s deposit account and (b) a prior perfected security interest.
- The district court denied the motions to quash and ordered the garnished funds paid to Frierson. UFA and Merchants appealed.

## Issues

1. Whether Merchants could defeat Frierson’s garnishment of UFA’s deposit account at Merchants by asserting a right of setoff against the account for UFA’s indebtedness to Merchants.
2. Whether Merchants’ prior perfected security interest (without Merchants first pursuing its own enforcement remedies) prevented a junior judgment creditor from reaching the deposit funds through garnishment.
3. Whether Frierson could collect from UFA’s deposit accounts at Centerre Bank and Country Club Bank notwithstanding Merchants’ asserted security interest.

## Decision

- Reversed in part and affirmed in part.
- The court reversed the turnover order as to the funds on deposit at Merchants, holding that Merchants’ right of setoff took priority over Frierson’s garnishment of that account.
- The court affirmed the turnover order as to the funds held at Centerre Bank and Country Club Bank.

## Legal Principles

- Garnishment reaches only the debtor’s property interests and only the debt (if any) that the garnishee bank owes the debtor; a garnishor cannot obtain more than the debtor could compel from the garnishee.
- Under Missouri law, when a bank has a valid setoff right against a depositor’s account for a mutual, matured (or otherwise presently enforceable) debt, the bank may apply the account balance to the depositor’s debt, leaving no garnishable obligation as to those funds.
- A bank’s setoff right is distinct from an Article 9 security interest; setoff operates as a direct reduction of what the bank owes its depositor, which can defeat garnishment of that account.
- A senior secured creditor cannot, merely by pointing to a default and a perfected security interest, stop a junior creditor’s execution while the senior creditor declines to act on its own enforcement remedies and continues the debtor relationship as ongoing.
- A creditor’s ability to defeat garnishment based on setoff is limited to the depository bank that holds the debtor’s funds and has a mutual debtor-creditor relationship with the account holder; the same bank cannot use setoff to block collection from accounts held at other banks.

## Conclusion

The Eighth Circuit held that Frierson’s garnishment could not reach the funds in UFA’s deposit account at Merchants because Merchants had a superior right of setoff against that account, but Frierson could garnish and obtain the smaller balances UFA held at the two other banks because Merchants’ security-interest theory did not, by itself, bar execution on those third-party accounts.


Frierson v. United Farm Agency, Inc., 868 F.2d 302 (1988)