A creditor may know that a California judgment debtor has little money in its own bank accounts but still has valuable assets outside its immediate control.
A customer may owe the debtor a large unpaid invoice. A business partner may hold equipment belonging to the debtor. Another company may control property in which the debtor has an interest.
California law provides a specific post-judgment mechanism for these situations. Under section 708.120 of the California Code of Civil Procedure, a court can order a third person to appear for examination when there is reason to believe that the person possesses or controls property in which the judgment debtor has an interest, or owes the judgment debtor more than $250.
This mechanism forms part of the broader process of debt collection in the USA, where enforcement remedies depend heavily on state law and on the location of the debtor and its assets.
If the creditor first needs to determine what property the judgment debtor owns, a direct California debtor examination may be the appropriate starting point. A third-party examination addresses a different problem: property or money that may be outside the debtor’s hands.
When California can order a third person to appear
Section 708.120 allows a judgment creditor to apply for an order requiring a third person to appear before the court or a court-appointed referee for examination.
The creditor must satisfy the court, by affidavit or otherwise, that there is reason to believe one of two things:
- the third person possesses or controls property in which the judgment debtor has an interest; or
- the third person owes the judgment debtor more than $250.
The creditor’s affidavit may be based on information and belief. That makes the procedure useful even where the creditor does not yet possess complete documentary proof of the relationship.
However, the procedure should not be treated as a way to summon any customer, supplier or business partner merely in the hope that something useful will emerge.
There should be a factual basis for believing that the third person either holds relevant property or owes money to the judgment debtor.
For an international creditor, this factual preparation can be particularly important. Useful evidence may include invoices, contracts, payment records, correspondence, public filings, information obtained from the debtor or documents showing an ongoing commercial relationship.
A customer who owes the debtor money can become the examination target
Consider a straightforward commercial example.
A foreign supplier obtains a California money judgment against a distributor. The distributor has little cash in the accounts already identified by the creditor, but one of its major customers still owes it $85,000 for delivered goods.
The economic value is not sitting in the debtor’s bank account. It exists as a receivable against the customer.
Section 708.120 gives the creditor a way to bring that customer into the enforcement process and examine it concerning the debt.
The examination may help establish matters such as:
- whether the customer actually owes money to the judgment debtor;
- the amount currently outstanding;
- whether payment is already due;
- whether part of the invoice has been paid;
- whether the customer claims a set-off, credit or contractual defence;
- whether the debt is disputed;
- whether the third person also possesses property belonging to the judgment debtor.
This is an important distinction from examining the judgment debtor directly.
The purpose is not merely to ask the debtor where its money is. The creditor can seek information from the person who may actually be holding the asset or owing the money.
The third person receives a shorter notice period
The service rules differ materially from those for a standard examination of the judgment debtor.
An order under section 708.120 must generally be personally served on the third person at least 10 days before the examination.
A copy of the order must also be served on the judgment debtor at least 10 days before the examination. Depending on the circumstances, service on the judgment debtor may be made personally or by mail as permitted by the statute.
This shorter period is one of the practical differences between the two California examination mechanisms.
A creditor familiar with the 30-day period applicable to a standard judgment debtor examination should not assume that the same timetable applies to a third-person examination.
Proper service remains critical because significant consequences can depend on it.
Mileage fees are not optional
There is another technical requirement that can easily be overlooked.
When the order is served on the third person, the creditor must also tender the mileage fees required by law.
If those fees are not tendered, the examination order is ineffective.
This makes the payment of mileage fees more than an administrative detail.
A creditor may have correctly identified the third person, obtained the order and arranged personal service, yet still undermine the procedure by failing to comply with this requirement.
For a foreign creditor coordinating enforcement from abroad, the service package should therefore be reviewed carefully before delivery.
The creditor should confirm not only who will perform service and when, but also whether all payments and documents required for effective service are included.
A sufficiently described receivable can create a one-year lien
Section 708.120 contains another feature with substantial enforcement value.
If the creditor’s application and supporting affidavit describe the relevant property or debt with sufficient specificity to allow it to be identified, service of the examination order on the third person creates a lien.
The lien may attach to:
- the judgment debtor’s interest in the property possessed or controlled by the third person; or
- the debt owed by the third person to the judgment debtor.
The lien continues for one year from the date of the order unless extended or terminated earlier by the court.
This is significantly different from the lien discussed in a direct judgment debtor examination.
The focus here is not a broad lien arising from service on the debtor itself. The section 708.120 lien is tied to property or a debt in the hands of the third person and to how that property or debt is described in the creditor’s application.
That makes specificity important.
If the creditor believes that a particular customer owes money under a known contract or invoice relationship, describing that receivable with enough detail to identify it may have consequences beyond simply defining the subject of the examination.
The description can affect whether service of the order creates the statutory lien.
The lien does not automatically turn the receivable into payment
The existence of a lien does not mean that the creditor automatically receives the money owed by the third person.
The examination order is not itself a final determination that the third person owes the judgment debtor the amount claimed.
The third person may dispute the debt.
It may argue that:
- the invoice has already been paid;
- goods were rejected;
- services were defective;
- the amount is not yet due;
- contractual deductions apply;
- a set-off exists;
- the property belongs to someone else;
- the judgment debtor has no enforceable interest in the asset.
The examination is therefore a mechanism for bringing the third person and the disputed property or debt before the court. It does not eliminate substantive disputes over ownership or liability.
This distinction becomes particularly important under section 708.180.
What happens if the third person denies owing the debtor?
A third-person examination may reveal an important dispute rather than an immediately collectible asset.
Suppose the creditor believes that a customer owes the judgment debtor $85,000. The customer appears for examination but says that nothing is due because it has a contractual claim against the debtor.
California law provides a mechanism for dealing with this situation.
Under section 708.180, the court may, at the request of the judgment creditor, determine the judgment debtor’s interest in property or determine whether a debt is actually owed to the judgment debtor.
The court may continue the proceeding to allow further discovery, the presentation of evidence or additional preparation.
This can make the examination considerably more powerful than a simple information-gathering hearing.
The proceeding may move from the question:
“Do you owe the judgment debtor money?”
to the more important question:
“Does a legally enforceable debt actually exist, and what interest does the judgment debtor have in it?”
A determination made under this procedure can bind the relevant participants, subject to applicable procedural rights and appeal.
Not every dispute can be decided inside the examination proceeding
Section 708.180 also places important limits on the court’s ability to resolve disputes within the examination itself.
A separate action may be necessary where the third person asserts a genuine adverse claim or where the statutory conditions for summary determination are not satisfied.
For example, the dispute may need to proceed through a separate creditor’s action if:
- the third person objects and the examining court would not be the proper court for a separate civil action concerning the property or debt;
- another civil action concerning the same property or debt is already pending;
- the court determines that the dispute should be resolved through a separate creditor’s suit.
This prevents the examination procedure from becoming an automatic substitute for ordinary litigation whenever a genuine third-party dispute exists.
For a creditor, the practical lesson is important.
A third-person examination can reveal, preserve and sometimes determine a valuable receivable, but it does not eliminate the need for litigation where ownership or liability is genuinely contested.
The court may stop payment or transfer while the dispute is being resolved
One of the most useful features of section 708.180 arises when there is a risk that the property or money will move before the dispute can be resolved.
A creditor may ask the court to restrict certain transfers or payments.
In appropriate circumstances, the court may prohibit the third person from transferring property to the judgment debtor or from paying the disputed debt to the judgment debtor while the relevant issue is being determined.
This can be critical.
Imagine that a customer acknowledges that a substantial payment is due within days, but a dispute arises over whether that receivable can be reached by the judgment creditor.
If the customer simply pays the money to the judgment debtor before the issue is resolved, the creditor may once again have to trace the funds after they have moved.
A temporary restriction can help preserve the practical value of the enforcement process.
Depending on the type of order requested, the court may require the creditor to provide an undertaking or other security.
The court can also impose broader restrictions after notice and motion where the statutory requirements are satisfied.
The important point is that the California procedure is not limited to asking questions. In the right circumstances, it can help prevent the relevant property or payment from disappearing while the dispute is being resolved.
The judgment debtor can claim that the property is exempt
The judgment debtor is not excluded from the process merely because the examination is directed at a third person.
Section 708.120 allows the judgment debtor to claim that all or part of the property or debt is exempt from enforcement.
The debtor must follow the statutory procedure for asserting the exemption, including the applicable filing and service requirements.
The court then determines whether the claimed exemption applies.
This is another reason why a third-person examination should not be presented as a guaranteed path to payment.
Even where the creditor correctly identifies a receivable or other asset and obtains an examination order, exemptions and other statutory protections may still affect whether the asset can ultimately be used to satisfy the judgment.
Failure to appear can have consequences for the third person
The examination order directed to the third person must also warn of the consequences of noncompliance.
Failure to appear after proper service can expose the third person to coercive measures, including contempt-related consequences, possible arrest procedures and liability for reasonable attorney’s fees in circumstances provided by law.
The key point is the same one that applies more generally to examination orders: the coercive consequences arise from failure to comply with a court order, not from the existence of the underlying debt itself.
In the third-person context, however, this issue should remain secondary.
The real importance of section 708.120 is that a person outside the original lawsuit may nevertheless be required to participate in post-judgment enforcement because that person may hold property or owe money belonging to the judgment debtor.
What a foreign creditor should verify before using section 708.120
A third-person examination is most effective when the creditor has already identified a concrete financial relationship worth investigating.
Before applying, a foreign creditor should normally consider:
- whether there is an enforceable money judgment;
- who specifically possesses the property or owes money to the judgment debtor;
- what factual information supports that belief;
- whether the amount owed by the third person exceeds the statutory threshold where the application is based on a debt;
- how precisely the property or receivable can be described;
- whether the description is sufficient to support the intended lien effect;
- whether personal service can be completed at least 10 days before the examination;
- whether the required mileage fees will be tendered with service;
- whether the judgment debtor will receive the required notice;
- whether an exemption may apply;
- whether the third person is likely to dispute the debt or ownership of the property;
- whether the creditor may need relief under section 708.180;
- whether a separate creditor’s action may ultimately be required.
The procedure is especially useful when the creditor already knows something important about the debtor’s commercial relationships.
A debtor with an empty bank account may still have substantial value tied up in invoices owed by customers, property held by another business or other rights against third parties.
California’s third-person examination procedure allows the creditor to investigate that value at its source.
When the relevant property or debt is identified with sufficient precision, service of the examination order can also create a one-year lien on the debtor’s interest in that property or debt.
And when a dispute arises, section 708.180 may provide tools to determine the issue, preserve the asset or prevent payment back to the judgment debtor while the matter is being resolved.
For an international creditor, that combination can make the difference between merely knowing that the debtor conducts business and identifying a specific third-party asset that can become part of a workable enforcement strategy.
