Myers v. Christensen

the date that each installment of benefits became due to the
date of Kerry’s payment. We remand the cause to the Court of
Appeals with instructions to remand the cause to the workers’
compensation review panel to address Russell’s appeal from
the trial court’s second enforcement order.
A ffirmed in pArt, And in pArt reversed
And remAnded with directions.
myeRs v. ChRistensen 	989
Cite as 278 neb. 989
richArd d. myers , trustee of the floors & more , inc.,
chApter 7 bAnkruptcy estAte , Appellee , v.
Jeff christensen et Al ., Appellees , And
chArter west nAtionAl bAnk ,
gArnishee -AppellAnt.
776 n.W.2d 201
Filed December 4, 2009. 	no. s-08-1212.
1. Garnishment: Appeal and Error. Garnishment is a legal proceeding. to the
extent factual issues are involved, the findings of the fact finder will not be set
aside on appeal unless clearly wrong; however, to the extent issues of law are
presented, an appellate court has an obligation to reach independent conclusions
irrespective of the determinations made by the court below.
2. Garnishment: Liability: Service of Process: Time. A garnishee’s liability is to
be determined as of the time the garnishment summons is served.
3. Judgments: Debtors and Creditors: Garnishment. the claim of a judgment
creditor garnishor against a garnishee can rise no higher than the claim of the
garnishor’s judgment debtor against the garnishee.
4. Garnishment: Liability: Service of Process: Time. in determining the liability
of a garnishee to a garnishor, the test is whether, as of the time the summons in
garnishment was served, the facts would support a recovery by the garnishor’s
judgment debtor against the garnishee.
Appeal from the District Court for Douglas County: gregory
m. schAtz, Judge. Reversed and remanded with directions.
Jeffrey A. silver for garnishee-appellant.
Brett s. Charles, of mcGill, Gotsdiner, Workman & Lepp,
P.C., L.L.O., for appellee Richard D. myers.
heAvicAn, 	c.J., 	wright, 	connolly, 	gerrArd, 	stephAn,
mccormAck , and miller-lermAn, JJ.
Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/01/2026 04:49 AM CST

stephAn, J.
this is an appeal from an order finding Charter West national
Bank (Charter West), as garnishee, liable to judgment creditor
Richard D. myers, trustee of the Floors & more, inc., bank-
ruptcy estate. Charter West contends that the district court
failed to consider its properly perfected security interest in
the judgment debtor’s bank deposit accounts when determin-
ing liability.
FACts
the facts are largely undisputed and arise primarily out of a
banking relationship between Charter West and Gencon, inc.,
a general contractor formerly known as Christensen interior
Contractors, inc. in september 2005, Gencon executed a com-
mercial security agreement granting Charter West a security
interest in, among other things, all of Gencon’s deposit accounts
with Charter West. the security interest applied to all current
and future loan proceeds advanced by Charter West to Gencon.
Charter West perfected its security interest in 2005 by filing a
Uniform Commercial Code (U.C.C.) financing statement with
the nebraska secretary of state.
in 2006 and 2007, Charter West made various loans to
Gencon, all documented by promissory notes. in January 2008,
the trustee of the bankrupt Floors & more, inc., which had
provided materials and services to Gencon, obtained a default
judgment in the amount of $10,450.65 against Gencon in
the U.s. Bankruptcy Court for the District of nebraska. On
February 14, the trustee sought to enforce the judgment by
commencing a garnishment proceeding against Charter West
in the district court for Douglas County. in his affidavit, the
trustee alleged that Charter West “ha[d] property of and [was]
indebted to” Gencon. Charter West received the summons and
order of garnishment by certified mail on February 20. At
the time the garnishment summons was received, Gencon’s
loans with Charter West were in excess of $400,000 and were
in default.
On the day the summons was received, Gencon’s deposit
account at Charter West had a balance of $30,702.06. After its
receipt of the summons in garnishment, Charter West continued
to honor checks written on Gencon’s account. Charter West’s
990 	278 neBRAsKA RePORts

president testified that the bank chose to honor the checks
because it was aware that Gencon had recently commenced a
large construction project and the bank thought its best chance
of recovering its indebtedness from Gencon was to give Gencon
an opportunity to succeed with the new project. the balance
of Gencon’s account was $26,561.23 on February 21, 2008;
$25,385.31 on February 22; and $571.45 on February 25. On
February 26, the account was overdrawn by $2,360.22, and on
February 27, it was overdrawn by $4,498.33. Charter West did
not exercise its right to set off the amount in Gencon’s account
to cover the defaults on the loans until sometime after February
29. Gencon ultimately ceased doing business, and Charter West
wrote off losses in excess of $400,000.
in its answers to the interrogatories served in the garnish-
ment proceeding, Charter West responded affirmatively to the
question of whether it had “property belonging to the judg-
ment debtor, or credits or monies owed to the judgment debtor,
whether due or not.” Charter West listed the “[p]roperty of the
judgment debtor in [its] possession” to be “Deposits.” it noted,
however, that the money or credits were “not due and owing
to the Debtor since all of Debtor’s property is subject to a per-
fected security interest in favor of Charter West.”
After receiving Charter West’s answers to the garnishment
interrogatories, the trustee filed an application to determine
Charter West’s liability as a garnishee. the district court con-
ducted an evidentiary hearing and found Charter West liable to
the trustee in the full amount of the trustee’s $10,450.05 claim.
the court reasoned that Charter West did not comply with
the nebraska garnishment statutes because it failed to hold
all funds in Gencon’s account after receiving the garnishment
summons and further found that such failure waived Charter
West’s right to a setoff. the court did not specifically analyze
the effect of Charter West’s perfected security interest in the
deposit account.
Charter West filed this timely appeal, which we moved to
our docket pursuant to our statutory authority to regulate the
caseloads of the appellate courts of this state.1
1 neb. Rev. stat. § 24-1106(3) (Reissue 2008).
myeRs v. ChRistensen 	991
Cite as 278 neb. 989

AssiGnment OF eRROR
the sole error assigned is that the court erred in finding
Charter West liable as a garnishee in light of Charter West’s
perfected security interest in Gencon’s deposit account.
stAnDARD OF ReVieW
[1] Garnishment is a legal proceeding. to the extent factual
issues are involved, the findings of the fact finder will not be
set aside on appeal unless clearly wrong; however, to the extent
issues of law are presented, an appellate court has an obligation
to reach independent conclusions irrespective of the determina-
tions made by the court below.2
AnALysis
Garnishment is a legal aid in the execution of a judgment;
it is a method by which a judgment creditor can recover
against a third party for the debt owed by a judgment debtor.3
Under nebraska’s garnishment statutes, a judgment creditor
may request that the court issue a summons of garnishment
against any person or business which “has property of and is
indebted to the judgment debtor.”4 the garnishee then must
answer interrogatories and disclose “the property of every
description and credits of the defendant in his possession or
under his control” at the time of the garnishment.5 A garnishee
can be discharged if he chooses to “pay the money owing to the
defendant by him” into court.6 But if the garnishee does not pay
the funds into court and the garnishor is not satisfied with the
garnishee’s answers to the interrogatories, the garnishor may
file an application to determine the liability of the garnishee,
and “may allege facts showing the existence of indebtedness of
2 see Davis Erection Co. v. Jorgensen, 248 neb. 297, 534 n.W.2d 746
(1995). see, also, Petersen v. Central Park Properties, 275 neb. 220, 745
n.W.2d 884 (2008); Spaghetti Ltd. Partnership v. Wolfe, 264 neb. 365, 647
n.W.2d 615 (2002).
3 see 38 C.J.s. Garnishment § 1 (2008).
4 neb. Rev. stat. § 25-1056(1) (Reissue 2008).
5 neb. Rev. stat. § 25-1026 (Reissue 2008).
6 neb. Rev. stat. § 25-1027 (Reissue 2008).
992 	278 neBRAsKA RePORts

the garnishee to the defendant or of the property and credits of
the defendant in the hands of the garnishee.”7 After conducting
an evidentiary hearing, the court may then find the garnishee
liable if the garnishee was either “indebted to the defendant” or
“had any property or credits of the defendant, in his possession
or under his control at the time of being served with the notice
of garnishment.”8
[2-4] A garnishee’s liability is to be determined as of the
time the garnishment summons is served.9 the claim of a judg-
ment creditor garnishor against a garnishee can rise no higher
than the claim of the garnishor’s judgment debtor against
the garnishee.10 Accordingly, in determining the liability of
a garnishee to a garnishor, the test is whether, as of the time
the summons in garnishment was served, the facts would sup-
port a recovery by the garnishor’s judgment debtor against
the garnishee.11
in this case, the trustee is the judgment creditor, or gar-
nishor; Gencon is the judgment debtor; and Charter West is
the garnishee. the case turns on the question of whether, on
the date the garnishment summons was served, Gencon had
a right to the deposit account which was superior to that of
Charter West. Only if that were so could Charter West have
been “indebted to” or holding “property or credits of” Gencon
within the meaning of the garnishment statutes and therefore
liable as a garnishee.12
it is undisputed from the record that Charter West had a
perfected security interest in Gencon’s deposit account which
predated the trustee’s judgment and the service of garnishment
interrogatories, that Gencon was in default on the loans secured
thereby on the date that the garnishment summons was issued,
7 neb. Rev. stat. § 25-1030 (Reissue 2008).
8 neb. Rev. stat. § 25-1030.02 (Reissue 2008).
9 see Spaghetti Ltd. Partnership v. Wolfe, supra note 2.
10 Fokken v. Steichen, 274 neb. 743, 744 n.W.2d 34 (2008); Spaghetti Ltd.
Partnership v. Wolfe, supra note 2.
11 Davis Erection Co. v. Jorgensen, supra note 2.
12 see § 25-1030.02.
myeRs v. ChRistensen 	993
Cite as 278 neb. 989

and that the amount in default far exceeded the balance in the
deposit account on that date. Under article 9 of the U.C.C.,
a creditor with a perfected security interest has certain rights
and remedies when a debtor defaults under a loan agreement.13
Under the U.C.C. as enacted in nebraska, after default, a
secured party “may reduce a claim to judgment, foreclose, or
otherwise enforce the . . . security interest . . . by any available
judicial procedure.”14 A secured party can take possession of
collateral after default “without judicial process, if it proceeds
without breach of the peace.”15 even more specifically, if, after
default, the secured party “holds a security interest in a deposit
account perfected by control,” it “may apply the balance of
the deposit account to the obligation secured by the deposit
account.”16 A bank “has control of a deposit account” if it “is
the bank with which the deposit account is maintained.”17 thus,
upon Gencon’s default prior to the service of the garnishment
summons, Charter West had the right to enforce its perfected
security interest in the deposit account simply by applying the
balance of the account to Gencon’s loan obligations.
the question presented here is whether the fact that Charter
West did not exercise that right until after it was served with
the garnishment summons operated to extinguish its priority
as a secured creditor and to subordinate its interest to that
of the garnishor. in concluding that it did, the district court
relied upon our decisions in Davis Erection Co. v. Jorgensen18
and United Seeds v. Eagle Green Corp.19 Both of these cases
involved claimed setoffs asserted as a defense to garnishment
proceedings. in United Seeds, we held that in order to maintain
a setoff, a party must demonstrate an intent and decision to
13 see McFarland v. Brier, 850 A.2d 965 (R.i. 2004).
14 neb. U.C.C. § 9-601(a)(1) (Cum. supp. 2008).
15 neb. U.C.C. § 9-609(b)(2) (Reissue 2001).
16 neb. U.C.C. § 9-607(a)(4) (Reissue 2001).
17 neb. U.C.C. § 9-104(a) (Reissue 2001).
18 Davis Erection Co. v. Jorgensen, supra note 2.
19 United Seeds v. Eagle Green Corp., 223 neb. 360, 389 n.W.2d 571
(1986).
994 	278 neBRAsKA RePORts

exercise the right to setoff, a subsequent action which com-
pletes the setoff, and a record which verifies that the action was
taken. We determined in that case that the district court had
correctly found that a garnishee bank had not exercised a valid
setoff. Citing an Oregon case,20 we also held that the bank had
waived any right of setoff by allowing the judgment debtor to
draw on the garnished account after notice of garnishment was
received. in Davis Erection Co., which involved a claimed set-
off arising from amounts due on related construction contracts,
we reversed a judgment for the garnishee upon a determination
that it had not exercised a right of setoff under the test adopted
in United Seeds as of the date it was served with garnishment
summons. in this case, the district court reasoned that because
Charter West had not completed the three steps held essential
to a setoff in United Seeds prior to its receipt of the garnish-
ment summons, and had honored checks drawn on the Gencon
account after receiving the summons, it had not established a
right of setoff and had waived any claimed right.
United Seeds and Davis Erection Co. are distinguishable
from this case in that neither involved a garnishee with a
prior perfected security interest in the property which was
the subject of the garnishment proceeding. Under nebraska
law, a “perfected security interest . . . has priority over a
conflicting unperfected security interest”21 in the same col-
lateral. Application of the principles of United Seeds and
Davis Erection Co. to the facts of this case would ignore and
indeed negate the statutory priority to which a holder of a prior
perfected security interest is entitled. Due to the existence
of Charter West’s perfected security interest, Gencon had no
enforceable right to the proceeds of the deposit account on the
date that the garnishment summons was served and therefore,
the trustee could have no such right. in other words, the trustee
could not acquire a claim by garnishment which was superior
to the claim of Charter West arising from its perfected secu-
rity interest. We therefore conclude as a matter of law that by
20 see Coastal Adj. Bureau v. Hutchins, 229 Or. 418, 367 P.2d 430 (1961).
21 neb. U.C.C. 9-322(a)(2) (Reissue 2001).
myeRs v. ChRistensen 	995
Cite as 278 neb. 989

virtue of its perfected security interest in the deposit account,
which was far exceeded by the amount of Gencon’s indebted-
ness then in default, Charter West was not “indebted to” or
holding “property or credits of” Gencon at the time of service
of the garnishment summons.22
Because of this basic factual distinction, the waiver principle
articulated and applied in United Seeds is likewise inapplicable
in this case. the record reflects that Charter West made a cal-
culated business decision to honor certain checks drawn on the
Gencon account as a means of enabling Gencon to perform on
a contract and thus produce revenue which could be applied to
its indebtedness. in so doing, Charter West was placing some
of its collateral at risk in order to produce receivables of an
anticipated greater amount which would also be subject to its
perfected security interest and applicable to Gencon’s debt.
Because Charter West had rights in the collateral superior to
that of the trustee, this decision cannot be viewed as a waiver
of Charter West’s security interest.
Finally, we address the trustee’s argument that Charter West
failed to comply with § 25-1056(1) after service of the garnish-
ment summons and should therefore be foreclosed from assert-
ing its right to the deposit account. the pertinent provisions of
§ 25-1056(1) require that, except when wages are involved, a
party served with a garnishment summons “shall hold the prop-
erty of every description and the credits of the defendant in his
or her possession or under his or her control at the time of the
service of the summons and interrogatories until the further
order of the court.” the trustee’s argument is based upon the
principle that because the garnishment statutes are in deroga-
tion of common law, they are to be strictly construed.23 thus,
the trustee argues, “[r]egardless of its security interest, Charter
West violated the nebraska garnishment statutes and is liable to
the trustee for the judgment amount.”24 this argument removes
the strict construction rule from its proper context. Because
22 see § 25-1030.02.
23 Spaghetti Ltd. Partnership v. Wolfe, supra note 2.
24 Brief for appellee myers at 11.
996 	278 neBRAsKA RePORts

the garnishment statutes give the judgment creditor rights not
available to the judgment creditor at common law, the statutes
must be construed strictly so as to limit those rights to only
those granted, and not to deprive third parties of their lawful
rights.25 But the trustee asks us to apply the strict construction
rule proactively to make a garnishee liable to a judgment credi-
tor for a debt which the garnishee does not owe the judgment
debtor. We decline to do so. Furthermore, because we conclude
on the facts of this case that the deposit account was not the
property of Gencon and therefore not subject to garnishment,
Charter West’s failure to strictly comply with the garnishment
statutes was not prejudicial to any party and did not frustrate
the objective of the garnishment statutes in any way.
COnCLUsiOn
For the reasons discussed, we conclude that the district court
erred in entering judgment in favor of the trustee. We reverse
the judgment of the district court and remand the cause with
directions to dismiss the garnishment proceeding.
reversed And remAnded with directions.
25 see 38 C.J.s., supra note 3, §§ 3 and 5.
LUCKy 7 v. tht ReALty 	997
Cite as 278 neb. 997
lucky 7, l.l.c., AppellAnt, v. tht reAlty, l.l.c.,
And pAmelA k. wAtAnAbe -gerdes , Appellees.
775 n.W.2d 671
Filed December 4, 2009. 	no. s-08-1290.
1. Judgments: Appeal and Error. in a bench trial, the trial court’s factual find-
ings have the effect of a jury verdict and will not be set aside on appeal unless
clearly erroneous.
2. ____: ____. the nebraska supreme Court determines questions of law indepen-
dently of the trial court’s conclusions.
3. Negligence: Fraud. negligent misrepresentation has essentially the same ele-
ments as fraudulent misrepresentation, with the exception of the defendant’s
mental state.
4. ____: ____. in both negligent and fraudulent misrepresentation cases, whether the
plaintiff exercised ordinary prudence is relevant to whether the plaintiff justifiably
relied on the misrepresentation when the means of discovering the truth was in
the plaintiff’s hands.