14.5.6.2 The Contract Approach

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A few courts have held that the agreement between the bank and the depositors is determinative and irrebuttable.⁵⁷⁵ These agreements (and the laws which regulate them) usually provide that, in the absence of customers’ instructions to the contrary, each co-depositor has a right to withdraw any or all of the funds at any time. If, it is reasoned, a single co-depositor has an absolute right to withdraw funds without notice to co-depositors and is able to use those funds for any purpose (including payment of the debt in question), a creditor should be able to “stand in the depositor’s shoes” and attach the entire account.⁵⁷⁶

Cases involving the banker’s right of setoff should be distinguished from third-party garnishment cases. When a bank exercises the right of setoff, it is collecting its own debt by taking money from a bank account that the depositors established with it, so it is a party to the account agreement. Courts are less likely to find the account agreement binding and incontestable when a third party who is a stranger to the contract is seeking to garnish the account.⁵⁷⁷ Cases holding the account agreement binding in disputes between the two holders of a joint account are also distinguishable because both holders are parties to the account agreement.

One of the few decisions to hold the account agreement binding in a third-party garnishment situation is University of Montana v. Coe.⁵⁷⁸ There, the Montana Supreme Court held that a creditor’s right to garnish a joint account depends entirely on the terms of the deposit agreement, regardless of extrinsic evidence presented by the account holders regarding actual ownership of the funds. If the deposit agreement creates a joint tenancy, a creditor can reach the entire account. If it creates a tenancy in common, each account holder has an equal share in the account, and a creditor can reach only the debtor’s share. The dissent characterized the court’s rationale as “bewildering.”

Some decisions stating that the account agreement is binding and incontestable arise in the context of a suit by the non-debtor account holder against the bank for having released the funds in response to the garnishment. These decisions usually go on to state that the non-debtor account holder could have raised the claim of ownership of the funds by intervening in the garnishment proceeding itself.⁵⁷⁹ Thus, these decisions do not stand for the proposition that the account agreement is binding in the sense that it prevents the non-debtor from asserting a claim to the funds in the garnishment proceeding.

Footnotes

575 U.S. Sec. & Exch. Comm’n v. Connectajet.com, Inc., 2016 WL 740358 (N.D. Tex. Feb. 25, 2016) (bank paperwork is dispositive; depositors checked box for joint account, not convenience account or convenience signer); Fleet Bank v. Carillo, 691 A.2d 1068 (Conn. 1997) (by putting her money in joint account, non-debtor wife took risk that husband might use account to pay his individual debts, as either spouse could withdraw entire balance; husband’s judgment creditor can reach entire account, and non-debtor has no right to establish actual ownership of the funds); Park Enters., Inc. v. Track, 47 N.W.2d 194 (Minn. 1951) (since deposit agreement gives debtor right to access entire account, it can be garnished in its entirety, and non-debtor co-owner has no right to establish ownership; now superseded by statute); Univ. of Mont. v. Coe, 704 P.2d 1029 (Mont. 1985) (right of third-party creditor to garnish joint account depends on terms of account agreement, regardless of evidence presented by account holders regarding actual ownership). See also Regions Bank v. Hyman, 91 F. Supp. 3d 1234 (M.D. Fla. 2015) (precluding account holder from presenting other evidence that account was held in tenancy by entireties, when signed signature card had option for entireties account but joint account was checked instead; this amounts to express disclaimer of tenancy by entireties).
576 United States v. Nat’l Bank of Commerce, 472 U.S. 713, 105 S. Ct. 2919, 86 L. Ed. 2d 565 (1985) (IRS had right to levy on taxpayer’s joint accounts since delinquent taxpayer had absolute right under Arkansas law to withdraw from joint accounts, but other owner can assert an ownership claim through IRS administrative procedure after levy). Accord St. Louis Union Tr. Co. v. United States, 617 F.2d 1293, 1302 (8th Cir. 1980) (IRS levy; “unqualified contractual right to receive property is itself a property right subject to seizure by levy”).
577 See Sears Roebuck & Co. v. Cosey, 44 P.3d 582, 584 (Okla. Civ. App. 2002) (distinguishing between right of bank that holds the deposit and right of third-party creditors). But see Fleet Bank v. Carillo, 691 A.2d 1068 (Conn. 1997) (refusing to make distinction between garnishment and setoff).
578 Univ. of Mont. v. Coe, 704 P.2d 1029 (Mont. 1985).
579 See, e.g., Triplett v. Brunt-Ward Chevrolet, Oldsmobile, Pontiac, Cadillac, GMC Trucks, Inc., 812 So. 2d 1061 (Miss. Ct. App. 2001); Ingram v. Hocking Valley Bank, 708 N.E.2d 232 (Ohio Ct. App. 1997). Cf. Alcantar v. Sanchez, 257 P.3d 966 (N.M. Ct. App. 2011) (suggesting, in context of conversion and negligence claims against bank, that account agreement might be binding if non-debtor account holder had agreed to it, but also stating that, by statute, funds in joint account belong to the parties in proportion to their contributions).