Opinion ID: 2630568
Heading Depth: 2
Heading Rank: 6

Heading: the use of a supersedeas bond to terminate a judgment lien

Text: ¶ 39 A supersedeas bond stays the execution of judgment pending appeal. Utah R. Civ. P. 62(d). [22] A supersedeas bond protects a judgment creditor's interest by providing a surety to whom the creditor may look should the appeal fail and the judgment debtor's financial position so deteriorate between judgment and disposition of the appeal that payment of the judgment by the debtor becomes impossible. See generally 5 Am. Jur.2d Appellate Review, § 441 (1995) ([T]he purpose of a supersedeas bond is to protect nonappealing parties by maintaining the status quo during the appeal and insuring that those who have obtained the judgment under review will not be prejudiced by a stay of the judgment pending final determination of the appeal.) ¶ 40 A judgment lien provides a judgment creditor with a means of satisfying a judgment from a judgment debtor's real property. Proper recordation of a judgment creates a judgment lien on a judgment debtor's real property located in the county in which the judgment is recorded. Utah Code Ann. § 78-22-1(2) (Supp.2001). A judgment lien may be enforced by writ of execution, levy, and sale, and has always been regarded as the highest form of security to a [creditor]. [23] Belnap v. Blain, 575 P.2d 696, 700 (Utah 1978) (citation omitted). Although the judgment lien statute creates a mechanism to assist in the enforcement of judgments, the right it provides is not absolute. The right to enforce a judgment lien may be suspended by the filing of an appeal accompanied by a supersedeas bond, and recent statutory amendments allow a judgment lien to be terminated altogether if adequate security is posted pending appeal: 5(a) If any judgment is appealed, upon deposit with the court where the notice is filed, of cash or other security in a form and amount considered sufficient by the court that rendered the judgment to secure the full amount of the judgment, together with ongoing interest and any other anticipated damages or costs, including attorney's fees and costs on appeal, the lien created by [the judgment] shall be terminated as provided in subsection 5(b). (b) Upon the deposit of sufficient security as provided in Subsection (5)(a), the court shall enter an order terminating the lien created by the judgment ... and granting the judgment creditor a perfected lien in the deposited security as of the date of the original judgment. § 78-22-1(5). The legislature has thus made a policy decision that some means of releasing a judgment debtor's property from a judgment lien pending appeal is desirable; the legal question before us is whether a supersedeas bond satisfies the conditions of section 78-22-1(5). ¶ 41 The inclusion of other security in section 78-22-1(5)(a) clearly indicates that the legislature contemplated security other than cash as a substitute for the security provided by a judgment lien. The requirements of section 78-22-1(5)(a) are satisfied if the court rendering the verdict finds the other security to be sufficient in form and amount. Section 78-22-1(5)(b) imposes an additional requirement, however. The order that releases the judgment lien must also grant the judgment creditor a perfected lien in the deposited security. § 78-22-1(5)(b). The question of whether a supersedeas bond may serve as other security within the meaning of Section 78-22-1(5)(a) hinges on whether the court can grant a judgment creditor a perfected lien in a supersedeas bond within the meaning of section 78-22-1(5)(b). ¶ 42 The statute does not define perfection. `This silence compels us to start with the assumption that the legislative purpose is expressed by the ordinary meaning of the words used.' WWC Holding Co., Inc. v. Pub. Serv. Comm'n, 2001 UT 23 ¶ 28, 44 P.3d 714 (quoting Sec. Indus. Ass'n v. Bd. Of Governors of the Fed. Reserve Sys., 468 U.S. 137, 149, 104 S.Ct. 2979, 82 L.Ed.2d 107 (1984) (citations omitted)). A security interest is generally perfected by public notice; this notice gives the perfected interest priority over other security interests in the same collateral. See, e.g., Black's Law Dictionary 1157 (7th ed. 1999) (Perfection: Validation of a security interest as against other creditors, usu[ually] by filing a statement with some public office or by taking possession of the collateral.). Utah's enactment of article 9 of the Uniform Commercial Code (UCC) embodies this general concept of perfection through notice: subject to enumerated exceptions, a financing statement must be filed to perfect all security interests. Utah Code Ann. § 70A-9a-310(1) (Supp.2001). [24] Through public notice, perfection both creates the priority of the perfecting creditor's claim and warns other creditors of that priority. Perfection means that the secured party has taken all the steps required under article 9 to bring the interest to completion and establish a priority. J.R. Simplot Co. v. Sales King Int'l, Inc., 2000 UT 92, ¶ 22, 17 P.3d 1100. The priority created by perfection offers creditors considerable protection in the event of a competition for collateral: a party who has secured its interest in accordance with article 9 has priority, upon a debtor's default, `over anyone, anywhere, anyhow except as otherwise provided by the remaining Code priority rules.' Id. at ¶ 14 (quoting Insley Mfg. Corp. v. Draper Bank & Trust, 717 P.2d 1341, 1346 (Utah 1986)) (quoting Continental Am. Life Ins. Co. v. Griffin, 251 Ga. 412, 306 S.E.2d 285, 287 (1983)). ¶ 43 In some circumstances recordation of a judgment provides a version of public notice that also serves to protect the interests of a creditor. If the function of perfection is the creation of priority through the provision of notice to third parties of a prior interest, it is possible to analogize between the public notice created by filing and that created by recordation of a judgment. In this loose sense of the term perfection, a court may be able to grant a perfected security interest if that interest is likely to have priority over competitors for the same collateral. Whether a court can give a perfected interest in a supersedeas bond in this sense becomes a question of whether a judgment creditor can enforce payment of a supersedeas bond against the surety who guaranteed that bond. ¶ 44 Plaintiff complains that a judgment creditor's security is diminished by the fact that a bonding company could challenge its obligation under the bond. The suretyship defenses that are generally available to sureties are narrowly drawn, however, and relate primarily to actions of the obligee (the party to whom the surety owes the obligation) that may increase the extent or likelihood of the surety's liability. See generally Restatement (Third) of Suretyship and Guaranty §§ 37-44 (1996). The case law regarding the enforcement of supersedeas bonds is not abundant; questions relating to supersedeas bonds often arise, not in the context of determining a surety's liability on a bond, but in determining a surety's priority among a judgment debtor's other creditors. These situations assume that the surety has been forced to honor its obligations under the bond; the near certainty of the surety's liability is underscored in early cases by reference to the sacredness of contract obligations embodied in a supersedeas bond. Farmers' Loan & Trust Co. v. N. Pac. R. Co., 68 F. 36, 38 (E.D.Wis.1895). [25] Once a judgment from which an appeal is taken is affirmed, a surety on a supersedeas bond must pay the judgment creditor if the judgment debtor does not, whatever recourse the surety might subsequently have against the judgment debtor. The liability of the principals and surety on the supersedeas bond became absolute when the judgment was affirmed and payment thereon was in default. Bankers' Mortgage Co. v. Bramblett, 128 Kan. 91, 93-4, 276 P. 67,68 (Kan.1929). ¶ 45 Consideration of a surety's priority relative to other creditors continues to drive judicial decisions regarding the use of supersedeas bonds; the Seventh Circuit has allowed the substitution of other security for a supersedeas bond pursuant to the federal rules of civil procedure because of its assumption that a supersedeas bond provides a judgment creditor with priority over other creditors. Olympia Equip. Leasing Co. v. W. Union Tel. Co., 786 F.2d 794, 797-98 (7th Cir.1986). Under the Seventh Circuit's reasoning, the difficulties associated with the bond are two-fold: a supersedeas bond for the entire amount of a judgment guarantees a judgment creditor full payment regardless of how that creditor would fare in competitions with other creditors without the security of the bond, and terms demanded by a bonding company may force a judgment debtor into bankruptcy, to the prejudice of other creditors. Consideration for the plight of other creditors compels the Seventh Circuit's reading of the federal rules as allowing other forms of security to substitute for a supersedeas bond under appropriate circumstances: an inflexible requirement of a bond would be inappropriate ... in an age of titanic damage judgments . . . where the requirement would put the defendant's other creditors in undue jeopardy. Olympia Equip., 786 F.2d at 795. Underlying these concerns for other creditors is the assumption that the surety can be forced to pay the full amount of the bond, and that sureties, equally aware of their exposure to liability, will arrange terms to protect themselves at the expense of other creditors. Olympia Equipment raises significant concerns regarding the effect of a requirement of a supersedeas bond, concerns which confirm the fact that a supersedeas bond furnishes a judgment creditor with considerable security for payment. ¶ 46 If a solvent surety's obligation on its bond is clear, plaintiff still complains that the potential insolvency of a surety renders a supersedeas bond an inadequate form of security. While a competition for the assets of a bankrupt surety would raise complex questions, these questions are purely speculative with regard to this case. The insolvency of any party to litigation may affect the ability of other parties to enforce the rights conferred by a judgment; attempts to enforce judgments may cause judgment debtors to seek the protection of the automatic stay provided under bankruptcy law. Section 78-22-1(5)(a) gives the court discretion to approve any other security offered to terminate the judgment lien; a lien will be terminated only if the proffered security is in a form and amount considered sufficient by the court that rendered the judgment to secure the full amount of the judgment. § 78-22-1(5)(a). If there is evidence of a surety's impending insolvency, the court need not approve the termination of a judgment lien. The mere suggestion that a company may become insolvent at some point in the future is insufficient to defeat the proposition that a supersedeas bond may offer security for payment to the degree required by section 78-22-1(5). [26] ¶ 47 A judgment lien is a creature of statute, and it is for the legislature to alter the terms of its creation and termination. While the legislature has not defined perfection under section 78-22-1(5)(b) precisely, a supersedeas bond may provide a perfected security interest in the general sense of perfection as notice creating priority that creates in turn a high degree of security for payment. We conclude that a supersedeas bond determined to be sufficient in form and amount by the trial judge may serve as other security sufficient to release a judgment lien under section 78-22-1(5).