Cumberland Security Bank, Inc. v. First Southern National Bank

• Court: Court of Appeals of Kentucky
• Decided: February 9, 2023
• Docket: 2021 CA 001515
• Status: Unknown

Opinion

RENDERED: FEBRUARY 10, 2023; 10:00 A.M. TO BE PUBLISHED

Commonwealth of Kentucky Court of Appeals

NO. 2021-CA-1515-MR

CUMBERLAND SECURITY BANK, INC. APPELLANT

APPEAL FROM PULASKI CIRCUIT COURT v. HONORABLE TERESA WHITAKER, JUDGE ACTION NO. 18-CI-00235

FIRST SOUTHERN NATIONAL BANK; AMY ERB; BURNSIDE, KENTUCKY; CHERYL NICHOLS; DANIEL ERB; DON NICHOLS; DON NICHOLS, EXECUTOR OF THE ESTATE OF CAROLE WOEHLER, AKA CAROLE D. WOEHLER, AKA CAROLE NICHOLS; FRAN NICHOLS; KENNETH NICHOLS; LARRY NICHOLS; MOLLY NICHOLS; PULASKI COUNTY, KENTUCKY; SOMERSET DEVELOPMENT, LLC; SOMERSET, KENTUCKY; STEVE NICHOLS; THE NEIGHBORHOOD VILLAS ASSOCIATION, INC.; AND YVONNE NICHOLS APPELLEES OPINION AFFIRMING IN PART, REVERSING IN PART, AND REMANDING

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BEFORE: CALDWELL, DIXON, AND TAYLOR, JUDGES.

CALDWELL, JUDGE: If a party is dissatisfied with a judgment and wishes to

postpone execution of it during an appeal, the party may file a supersedeas bond.

Here, a party did just that by posting a supersedeas bond which promised that the

party would “satisfy the judgment together with interest, costs and damages for

delay” if the judgment at issue were to be affirmed. But that appeal involved only

a question about which of two mortgages had priority, not the underlying monetary

judgment. It is uncontested that the party who posted the bond would otherwise

not be liable for paying the monetary judgment. After we affirmed the trial court’s

decision about which mortgage had priority, the opposing party sought to satisfy

the monetary judgment in its favor from the supersedeas bond. We hold that the

trial court erred by refusing to do so.

FACTUAL AND PROCEDURAL HISTORY

The most important underlying facts are not contested. Cumberland

Security Bank, Inc. (Cumberland) and First Southern National Bank (First

Southern) each had mortgages on the same land in Pulaski County. The banks

disagreed about which mortgage had priority. The trial court ruled that

Cumberland’s mortgage had priority. In the same document, the trial court also

-2- issued a default in rem judgment for the balance remaining on Cumberland’s

mortgage, plus interest, against the property and the estate and heirs of

Cumberland’s deceased borrower, Carole Woehler. First Southern was not

required to pay that judgment. The trial court ordered the property to be sold.

Dissatisfied, First Southern appealed. To prevent the property from

being sold while its appeal was pending, First Southern elected to file a

supersedeas bond. The trial court approved that bond without requiring First

Southern to have a surety. The bond, which exceeded the amount of the monetary

judgment by over $50,000, stated in relevant part that First Southern would

“satisfy the judgment together with interest, costs and damages for delay if for any

reason . . . the judgment is affirmed . . . .” However, the only issue before us in

First Southern’s appeal was which mortgage had priority. In other words, First

Southern posted a monetary bond promising to satisfy “the judgment together with

interest, costs and damages for delay” for which it otherwise was not financially

responsible.

We affirmed the trial court’s conclusion that Cumberland’s mortgage

had priority. First Southern National Bank v. Cumberland Security Bank, Inc.,

Nos. 2019-CA-0205-MR and 2019-CA-0206-MR, 2021 WL 4484954 (Ky. App.

Oct. 1, 2021). After our opinion became final and the case returned to the trial

court, Cumberland then filed two motions. First, it asked the court to order the

-3- Master Commissioner to sell the property at issue. Second, Cumberland asked to

satisfy the monetary judgment from the supersedeas bond. First Southern argued

that it “does not owe Cumberland Security Bank any money” so the supersedeas

bond cannot be used to pay the judgment. In other words, First Southern

contended that the reference to “the judgment” in its supersedeas bond did not

cover the monetary portion of the underlying judgment.

The trial court issued a terse order, which contained neither findings

nor citations to legal authority, denying Cumberland’s motion to satisfy the

judgment from the supersedeas bond. Instead, the court ordered the bond to be

released and the property sold. The Master Commissioner quickly sold the

property, but the proceeds were insufficient to satisfy Cumberland’s judgment.

Cumberland then filed this appeal. Cumberland named the persons and entities

who have an interest in the property as appellees, but First Southern is the only

appellee who has actively participated in this appeal.

ANALYSIS

Standards of Review

Our review is de novo because the core facts are undisputed, and this

appeal presents questions of law. Revenue Cabinet v. Comcast Cablevision of

South, 147 S.W.3d 743, 747 (Ky. App. 2003). Similarly, a supersedeas bond is

generally deemed to be a contract, 5 C.J.S. Appeal and Error § 1202 (2023), and

-4- we review the construction or interpretation of a contract de novo. See, e.g.,

Nelson v. Ecklar, 588 S.W.3d 872, 878 (Ky. App. 2019).

The Supersedeas Bond Applies to This Judgment

“In the absence of ambiguity a written instrument will be strictly

enforced according to its terms.” Mounts v. Roberts, 388 S.W.2d 117, 119 (Ky.

1965). Thus, even though “little has been written on the topic of supersedeas

bonds[,]” Strunk v. Lawson, 447 S.W.3d 641, 652 (Ky. App. 2013), we must

strictly enforce the terms of the bond at issue.

This bond was executed on a fill-in-the-blanks form provided by the

Administrative Office of the Courts. The substantive language of the bond is:

The Appellant [First Southern] having appealed from a judgment of this Court rendered on January 3 and January 18, 2019, for $67,872.59 and costs, we, First Southern National Bank, as principal, and ___________, as surety, bind ourselves and our estates to Appellee [Cumberland] in the amount of $120,000.00 to satisfy the judgment together with interest, costs and damages for delay if for any reason the appeal is dismissed or the judgment is affirmed . . . .

Record (“R.”) at 221. A representative of First Southern and the trial court signed

the bond below the quoted language.

The plain language of the bond contains a promise by First Southern

to “satisfy the judgment . . . if for any reason . . . the judgment is affirmed . . . .”

Id. It is unquestioned that we affirmed the judgment. Thus, the only apparent

-5- prerequisite to trigger First Southern’s promise to “satisfy the judgment” was met.

Indeed, the purpose of a supersedeas bond is to reassure the other party that the

appealing party will satisfy a judgment if the appeal proves to be unsuccessful. 5

C.J.S. Appeal and Error § 1202 (2023) (“In essence, an appeal bond provides

assurances that any remaining judgment, left standing following an appeal, will be

satisfied.”); Wheeler v. Rea, 306 S.W.2d 294, 296 (Ky. 1957) (“A supersedeas

bond, by its terms, is a covenant to perform the judgment and to pay all damages

and costs.”). The promise in First Southern’s bond should be strictly enforced.

We recognize that this case is unusual because First Southern

promised to satisfy a judgment for which it otherwise was not responsible. But we

conclude that unique factual twist does not alter the outcome of this case because it

does not alter the plain language of the bond First Southern chose to post.

We are not persuaded by First Southern’s argument that it only agreed

to satisfy the non-monetary portions of the judgment because satisfying the non-

monetary portion of the judgment, i.e., the mortgage priority decision, did not

require First Southern to do anything. Thus, accepting First Southern’s argument

that it only agreed to satisfy the non-monetary portions of the judgment would

render illusory the straightforward language of the bond by which First Southern

promised to “satisfy the judgment” if its appeal was unsuccessful because, under

its theory, First Southern would not really have promised to do anything. Courts

-6- must strive to give meaning to all words in a written agreement. Cantrell Supply,

Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 384-85 (Ky. App. 2002).

And the bond specifically referred to a judgment in the amount of

$67,872.59. So, by posting a bond which contains a promise to “satisfy” the

judgment and to pay interest and recoverable costs and fees, First Southern

logically agreed to pay the monetary judgment. After all, what interest would be

owed on a nonmonetary judgment which only assessed the priority of mortgages?

We also stress that First Southern voluntarily chose to file a

supersedeas bond. As our Supreme Court has held, “[a] party, however, does not

need to post a supersedeas bond to take an appeal from a judgment.” Elk Horn

Coal Corp. v. Cheyenne Resources, Inc., 163 S.W.3d 408, 419-20 (Ky. 2005),

overruled on other grounds by Calloway Cnty. Sheriff’s Department v. Woodall,

607 S.W.3d 557 (Ky. 2020). First Southern chose to file a monetary supersedeas

bond, thereby obligating itself to “perform the judgment and to pay all [properly

recoverable] damages and costs.” Wheeler, 306 S.W.2d at 296. If First Southern

did not want to have to pay the judgment, it should not have filed the bond.

Thus, we reject First Southern’s argument that enforcing the terms of

the bond penalizes it for choosing to file an appeal. Instead, enforcing the terms of

the bond is a mere recognition of the inherent consequences stemming from First

Southern’s choice to file a supersedeas bond when taking that appeal. In sum, we

-7- reject First Southern’s argument that it would be unfair to require it to honor its

voluntary promise.

First Southern argues its bond cannot be used to satisfy an in rem

judgment. But First Southern cites no authority to support that contention. The

fact that the judgment at issue was at least partially in rem does not change the

structure and mechanisms governing supersedeas bonds in general, or the specific

promissory language in this bond by which First Southern pledged to satisfy the

same in rem judgment it now claims that it should not have to satisfy.

We also reject First Southern’s argument that Cumberland suffered no

damages. If First Southern had not posted the supersedeas bond, Cumberland

could have sought to execute on the judgment and would thus have received the

proceeds from the sale of the property immediately. The posting of the bond

delayed the Master Commissioner’s sale for over two years. A party is harmed by

incurring a lengthy delay in receiving funds to which it is legally entitled.

Finally, we vigorously disagree with First Southern’s odd argument

that its bond cannot be used to pay the judgment because Cumberland was not

victorious in the first appeal. To the contrary, it is beyond rational debate that

Cumberland was completely victorious in the first appeal since we affirmed the

trial court’s decision that Cumberland’s mortgage had priority over that of First

Southern – the only substantive issue we were asked to address.

-8- Because its brief is not crystal clear, it is possible that First Southern

is attempting to argue that Cumberland has to prevail on this appeal for the

judgment to be satisfied from the bond. The plain language of the supersedeas

bond shows that it obligated First Southern to pay the judgment if it were affirmed.

It was. The judgment itself is not at issue in this appeal and nothing in the bond

requires Cumberland to prevail in a second appeal before the promise to satisfy the

judgment becomes effective. And, in any event, Cumberland is prevailing here.

In short, First Southern must comply with the plain language

contained in the supersedeas bond it voluntarily elected to post. That plain

language’s reference to the “judgment” encompasses the monetary judgment, not

just the nonmonetary judgment. Thus, the trial court erred by denying

Cumberland’s motion to satisfy the judgment from the supersedeas bond funds.1

Attorney Fees Are Not Recoverable

Having determined that the bond may be used to pay the monetary

judgment, we briefly address what costs and fees Cumberland may recover from

the bond. Obviously, the amount of the monetary judgment, applicable interest

1 Our conclusion is not changed by the fact that Cumberland also filed a motion to have the property sold by the Master Commissioner. The two motions are potentially contradictory, but they could have worked together. For example, Cumberland could have been made whole from the supersedeas bond and then First Southern, pursuant to its mortgage, could have received funds from the Master Commissioner’s sale. In any event, pleading in the alternative is generally permissible, see, e.g., Roach v. Hughes, 419 S.W.3d 46, 49 (Ky. App. 2013), and First Southern has not shown that Cumberland’s motion to have the property sold rendered null or otherwise inherently defeated the motion to satisfy the judgment from the supersedeas bond.

-9- thereon, and costs may be paid from the bond. The trial court shall calculate those

amounts on remand. The court should also determine what additional “damages

for delay[,]” if any, Cumberland should recover.

Those calculations are for the trial court to consider on the back end

of this dispute. The main disagreement we must resolve on the front end is

whether Cumberland is entitled to receive attorney fees. The answer is no.

First, though not discussed by the parties, precedent holds that

attorney fees generally are not recoverable from supersedeas bonds. See, e.g.,

Combs v. Combs, 304 Ky. 271, 200 S.W.2d 481, 483 (1947) (“It is a firmly

established rule that a fee allowed for an attorney’s services on appeal does not

constitute an element of damage in an action on the supersedeas bond.”);

Dowling’s Adm’x v. Walker, 120 Ky. 528, 87 S.W. 281, 282 (1905) (“The

covenant of a supersedeas bond does not cover an attorney’s fee, as a part of the

costs.”). And this bond does not contain language which contravenes that general

rule. Second, Cumberland has not shown that it has a separate statutory, or other

non-contractual right, to recover attorney fees from First Southern. See, e.g., Bell

v. Commonwealth, Cabinet for Health and Family Services, Dep’t for Community

Based Services, 423 S.W.3d 742, 748 (Ky. 2014) (holding that “attorney’s fees in

Kentucky are not awarded as costs to the prevailing party unless there is a statute

permitting it or as a term of a contractual agreement between the parties”).

-10- Third, we reject Cumberland’s strained argument that it is entitled to

recover attorney fees from First Southern by virtue of language in the promissory

note executed by Woehler. That argument is fatally flawed because First Southern

is a stranger to that contract. See, e.g., Lawrence v. Bingham Greenebaum Doll,

L.L.P., 599 S.W.3d 813, 821 (Ky. 2019) (noting that a promissory note is an

enforceable contract which is independent of a mortgage).

Paragraph 16 of the promissory note at issue provides as follows:

On or after the occurrence of an Event of Default, to the extent permitted by law, I agree to pay all expenses of collection, enforcement or protection of your rights and remedies under this Note or any other Loan Document. Expenses include, but are not limited to, reasonable attorneys’ fees as provided by law, and court costs.

The promissory note defines “I” as the “Borrower signing this Note, individually

and together with their heirs, successors and assigns, and each other person or legal

entity (including guarantors, endorsers and sureties) who agrees to pay this Note.”

The note defines “your” as “the Lender . . . .”

First Southern does not fit within the definition of the borrower or the

lender. Instead, the borrower was Woehler (now, her estate and heirs) and

Cumberland was the lender. First Southern was neither the borrower nor the

lender. The only apparent relationship First Southern had with Woehler was the

indirect happenstance that she sold property to a buyer who apparently borrowed

-11- money from First Southern to make that purchase. That attenuated relationship

cannot be used to hold First Southern responsible for Woehler’s debts.

In short, Cumberland and Woehler had a contractual relationship with

each other; neither had one with First Southern. Cumberland has not shown that

the promise by First Southern in its supersedeas bond to satisfy the judgment

somehow also includes a promise to assume responsibility for Woehler’s

obligation to pay attorney fees to Cumberland under a separate promissory note.

In short, First Southern cannot be bound by the terms of a contract to

which it has no relationship. See, e.g., Harlan Public Service Co. v. Eastern Const.

Co., 254 Ky. 135, 71 S.W.2d 24, 29 (1934) (“one cannot be bound by a contract to

which he was not a party”); Presnell Const. Managers, Inc. v. EH Const., LLC, 134

S.W.3d 575, 579 (Ky. 2004) (internal quotation marks, footnotes, and citations

omitted) (“Privity of contract is [t]he relationship between parties to a contract,

allowing them to sue each other but preventing a third party from doing so. Thus,

[o]rdinarily, the obligations arising out of a contract are due only to those with

whom it is made; a contract cannot be enforced by a person who is not a party to it

or in privity with it, except under a real party in interest statute or, under certain

circumstances, by a third-party beneficiary.”).

Where does that leave us? The trial court erred by concluding that

First Southern was not liable for the monetary judgment. However, the property at

-12- issue has been sold and the supersedeas bond released. Therefore, the case must be

remanded for the trial court to calculate the remaining amount owed to

Cumberland (the difference between the funds received by Cumberland after the

Master Commissioner’s sale and the amount of the judgment, plus interest and all

properly recoverable costs and damages for delay – which shall not include

attorney fees). Thereafter, the court shall enter a judgment in favor of Cumberland

against First Southern for that amount. Because the trial court unfortunately

ordered the supersedeas bond to be released, First Southern will have to tender

separately to Cumberland the amount of the forthcoming judgment.2

CONCLUSION

For the foregoing reasons, the Pulaski Circuit Court is affirmed in

part, reversed in part, and this matter is remanded with instructions for proceedings

consistent with this Opinion.

ALL CONCUR.

2 As we do not provide advisory opinions, we decline to address any potential causes of action any of the parties may have, such as whether Cumberland may seek to recover attorney fees from Woehler’s estate or heirs. Also, we have considered all the arguments in the parties’ briefs but have discussed only those we deem necessary to resolve properly this appeal.

-13- BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE FIRST SOUTHERN NATIONAL BANK: Sarah Tipton Reeves Jeffrey R. Tipton Ashley D. Gerughty Corbin, Kentucky Stephanie McGehee-Shacklette Bowling Green, Kentucky

-14-