CUMBERLAND INSURANCE COMPANY, INC. v. MANNING FAMILY TRUST and JOHN W. BACKER
Annotate this Case
Download PDF
RENDERED:
January 16, 1998; 10:00 a.m.
NOT TO BE PUBLISHED
NO. 95-CA-3490-MR
NO. 96-CA-0905-MR
NO. 96-CA-1985-MR
CUMBERLAND INSURANCE COMPANY, INC.
v.
APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE REBECCA M. OVERSTREET, JUDGE
CIVIL ACTION NO. 90-CI-003506
MANNING FAMILY TRUST and
JOHN W. BACKER
APPELLEES
OPINION
REVERSING AND REMANDING
* * * * *
BEFORE:
DYCHE, GUIDUGLI and SCHRODER, Judges.
GUIDUGLI, JUDGE.
Cumberland Surety Insurance Company, Inc.
(Cumberland) appeals from several orders entered by the Fayette
Circuit Court regarding its position as surety on a supersedeas
bond issued to stay execution of a judgment in favor of the
Manning Family Trust (MFT) against Dr. John W. Backer (Backer).
We reverse and remand.
The facts in this case are surprisingly simple.
MFT
filed suit against Backer for breach of contract and/or specific
performance.
MFT alleged that it entered into an oral contract
with Backer wherein Backer agreed to sell a mare named Female
Star who was currently in foal to Alydar and her 1990 Alydar colt
to MFT.
Following a bench trial, the trial court entered
judgment against Backer on July 17, 1992, awarding MFT specific
performance along with damages and costs.
In order to stay
execution of the judgment pending appeal, Backer obtained a
surety bond (the bond) from Cumberland naming Cumberland as
surety and Backer as principal in the amount of $550,000.
The
bond provided in pertinent part:
The appellant having appealed from a judgment
of this court rendered on July 17, 1992, for
$73,459.15 plus specific performance and
costs, we, John W. Backer as principal and
Cumberland Surety Insurance Company, Inc., as
surety, bind ourselves and our estates to
appellee in the amount of $550,000.00 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, and to satisfy in full such
modification fo [sic] the judgment and such
interest and costs, including costs on the
appeal, as the appellate court may adjudge.
The trial court approved the bond on October 29, 1993.
Backer
appealed from the trial court's judgment.
This Court entered its opinion on Backer's appeal on
July 14, 1995.
The Court affirmed the trial court's finding that
an oral contract for the sale of the horses existed between
Backer and MFT.
However, the Court found that the trial court
erred in awarding specific performance on the ground that the
colts were no longer available.
Thus, the Court affirmed the
judgment in part and "reversed and remanded to reconsider damages
and determine a monetary damage award."
NO. 95-CA-3490-MR & NO. 96-CA-0905-MR
-2-
Following issuance of the Court of Appeals's decision,
Backer filed a motion for restitution with the trial court on
August 7, 1995.
In the motion Backer sought, among other relief,
a release of the bond.
The trial court entered an order on
September 11, 1995, denying Backer's motion insofar as it sought
release of the bond.
Following the trial court's denial of Backer's motion,
Cumberland filed its own motion seeking release of the bond on
November 13, 1995.
In its motion, Cumberland argued that as a
result of the decision of the Court of Appeals, there was no
judgment remaining to be paid or stayed and that Cumberland had
performed its obligations under the bond and was entitled to
discharge.
In its response filed with the trial court on
November 21, 1995, MFT argued that Cumberland was not a party to
the action and thus lacked standing to request release of the
bond.
MFT further contended that the only rights Cumberland had
in the action were those afforded to Backer as principal; and
pointed out that Backer's motion to release the bond had already
been denied.
Following a hearing, the trial court denied
Cumberland's motion by order entered January 2, 1996.
Prior to the trial court's denial of Cumberland's
motion to release the bond, Cumberland filed a motion to
intervene with the trial court on November 29, 1995.
In its
motion, Cumberland stated that it was not seeking to intervene in
the trial court's determination as to damages, but instead was
seeking intervention "for the limited purpose of protecting its
-3-
own interest in its supersedeas bond."
The trial court denied
the motion by order entered December 20, 1995.
On December 22,
1995, Cumberland filed its notice of appeal from the trial
court's orders of December 20, 1995, September 11, 1995, and the
order denying Cumberland's motion for release of the bond.
The trial court conducted a bench trial on the issue of
damages and entered judgment in favor of MFT against Backer in
the amount of $1,483,294.00.
On February 23, 1996, MFT filed a
motion for judgment against Cumberland in the amount of
$550,000.00 representing the penal sum of the bond.
The trial
court entered judgment in favor of MFT against Cumberland in the
amount of $550,000.00 by order entered March 27, 1996.
Cumberland appealed from the judgment, and this appeal was
consolidated with the earlier appeal.
MFT and Backer settled their dispute whereby MFT agreed
to accept $171,000 cash, a 2/3 interest in a 1995 filly, and the
claim against the bond.
MFT further agreed to forebear any other
collection efforts against Backer.
Backer agreed not to file
bankruptcy within ninety days, not to appeal the judgment, and to
cooperate in another lawsuit with MFT.
NO. 96-CA-1985-MR
Following its second appeal, Cumberland entered into a
supersedeas bond with Nobel Insurance Company in the amount of
$682,000 to stay execution on the $550,000 judgment (bond II).
The amount of bond II represented the judgment amount and two
years' interest at the legal interest rate of 12%.
-4-
The bond was
approved by the trial court on April 19, 1996.
On April 29,
1996, MFT filed a motion with the trial court pursuant to CR
73.06 requesting that bond II be increased.
The trial court held oral arguments on MFT's motion on
June 4, 1996.
At the hearing, MFT presented testimony from
several experts as to the losses sustained by MFT.
In an order
entered June 20, 1996, the trial court held:
[MFT] would use the superseded money to
purchase six to eight mares in foal, then
would sell the foals and rebreed [sic] the
mares over the next two years. Due to the
delay in collecting the judgment, Plaintiff
will lose two crops of foals over the next
two years. Mr. Manning, according to expert
testimony, could purchase seven mares and
produce 14 foals in two years. If all the
foals lived, he would realize $700,000 in
gross revenues. As a result, this Court
finds, based on the expert testimony, that
Mr. Manning potentially will lose $700,000
gross profit due to the delay of the appeal.
This Court notes that the parties concede
that all the foals might not live, however,
the purpose of the bond is to secure the
Plaintiff against all loss due to the delay.
If the appeal is affirmed, Plaintiff will not
automatically be entitled to the amount
superseded but will have to prove by a
preponderance of the evidence to this Court
that these damages were incurred.
Wherefore, it is hereby ORDERED that the
supersedeas bond posed by Cumberland Surety
on April 29, 1996, is insufficient. This
Court hereby disapproves that supersedeas
bond and ORDERS the supersedeas bond to be
set at $1,250,000.00 to secure the judgment,
costs on appeal, interest, and damages for
delay.
This Court denied Cumberland's motion for emergency relief by
order entered June 27, 1996.
Cumberland filed its notice of
-5-
appeal from the trial court's order of June 20, 1996, on July 17,
1996.
As this case raises several novel issues, we will
address each issue separately.
I. DID THE TRIAL COURT ERR IN REFUSING
TO ALLOW CUMBERLAND TO INTERVENE TO
REPRESENT ITS INTEREST IN THE SURETY BOND?
Cumberland contends that it should have been permitted
to intervene to represent its interest in the surety bond.
We
agree.
Under Kentucky Rules of Civil Procedure (CR) 24.01, a
party is entitled to intervene as a matter of right "when the
applicant claims an interest relating to the property or
transaction which is the subject of the action and is to situated
that the disposition of the action may as a practical matter
impair or impede the applicant's ability to protect that interest
unless that interest is adequately represented by existing
parties."
As Cumberland discovered when its motion for release
of the bond was denied, a party who is not a party to an action
cannot make a claim for relief in the action until a motion to
intervene has been made and granted by the trial court.
Ashland
Public Library Board of Trustees v. Scott, Ky., 610 S.W.2d 895,
896 (1981).
As Cumberland indicates, the trial court did not find
that Cumberland's motion to intervene was untimely.
In denying
Cumberland's motion, the trial court indicated that it could not
find any authority which would allow Cumberland to intervene and
-6-
pointed out that the Court of Appeals only reversed part of the
judgment as opposed to reversing the entire judgment.
We have conducted our own search on the ability of a
surety to intervene to protect its interest on a bond when the
judgment the bond covers is reversed on appeal as to the amount
of damages and have found no case law which specifically
addresses this issue.
The only case we have found is Neeley v.
Bankers Trust Co. of Texas, 848 F.2d 658 (5th Cir. 1988), where
the Court noted in its recitation of the facts that the surety
was permitted to intervene on remand to protect its interest in
an appeal bond after the trial court granted the appellant's
motion to stay release of the bond.
Neeley, 848 F.2d at 659.
We find that Cumberland had an interest in this case
which could not be adequately represented by Backer on remand.
As Cumberland points out, Backer would be held liable to MFT for
any judgment entered by the trial court on remand.
However, we
believe that there was a legitimate question regarding
Cumberland's liability for any judgment rendered on remand
following reversal of the trial court's original award of damages
which could not be adequately represented by Backer.
If
anything, the positions of Backer and Cumberland can be
characterized as adverse upon remand.
Because Cumberland was in
a position to be bound by a judgment in an action where
representation of its interest by a party to the action would
have been inadequate, the trial court erred in not allowing
Cumberland to intervene pursuant to CR 24.01(6).
-7-
II. WAS CUMBERLAND'S APPEAL BOND DISCHARGED
AS A MATTER OF LAW BY THIS COURT'S REVERSAL
OF THE DAMAGES PORTION OF THE SUPERSEDED
JUDGMENT?
The question of whether a surety's obligation on a
supersedeas bond is discharged by operation of law upon entry of
an appellate opinion which affirms liability but reverses a
damages award and remands the matter for a new trial on the issue
of damages is a matter of first impression in Kentucky.
However,
other federal and state jurisdictions which have addressed this
identical issue have held that the supersedeas bond is discharged
upon entry of an appellate opinion which remands a superseded
judgment for a new trial on the issue of damages.
The United States Supreme Court noted in Gay v.
Parpart, 101 U.S. 391, 25 L.Ed. 841 (1879), that the purpose of
the supersedeas bond is to compensate the non-appealing party for
damages and costs incurred in the event of an unsuccessful
appeal, and held "[i]f, on the final disposition of a writ of
error or appeal, the judgment or decree brought under review is
not substantially reversed, it is affirmed and the writ of error
or appeal has not been prosecuted with effect."
392, 25 L.Ed. at 841.
Gay, 101 U.S. at
The Supreme Court later expounded its
holding in Gay in the later case of Crane v. Buckley, 203 U.S.
441, 27 S.Ct. 56, 51 L.Ed. 260 (1906), when it defined "to
effect" as "an expression substantially equivalent to prosecuting
his appeal with success; to make substantial and prevailing his
attempt to reverse the decree or judgment awarded against him."
Crane, 203 U.S. at 447, 27 S.Ct. at 58, 51 L.Ed. at 263.
-8-
The
Court further held that the obligation of a surety under a
supersedeas bond is strictissimi juris and is "not to be extended
by implication or enlarged construction of the terms of the
contract entered into."
Id.
The jurisdictions which have addressed this same issue
have held that an affirmance of liability on appeal coupled with
a reversal for a new trial on the issue of damages constitutes
prosecution of an appeal with effect.
In Neeley, supra, the
appellate court affirmed the trial court's verdict finding the
defendant guilty of fraud but remanded for a new trial on the
issue of damages.
The surety intervened on remand and sought
release of the bond, but the trial court denied the motion.
On
appeal, the Court held that the surety bond was discharged by the
judgment entered by the appellate court.
The language of the bond is explicit in that it includes only the
judgment, sentence or decree and award of damages of the court of
appeals. On the original appeal, there were no damages awarded.
Instead, all of the damages were either reversed or vacated for a
new trial.
*
*
*
Here, there was no judgment, in terms of
money damages, to enforce after the appeal.
Instead, a new trial was necessary. The
bond, limited by its explicit terms to the
judgment of the court of appeals, was
discharged.
Neeley, 848 F.2d at 659.
See also, Aetna Casualty & Surety Co.
v. LaSalle Pump & Supply Co., 804 F.2d 315 (5th Cir. 1986);
Tennessee Valley Authority v. Atlas Machine & Iron Works, 803
F.2d 794 (4th Cir. 1986); Revlon, Inc. v. Carson Products Co.,
647 F.Supp. 905 (S.D.N.Y. 1986).
Many state courts have also
-9-
reached the same conclusion.
In Amwest Surety Ins. Co. v.
Graham, 949 S.W.2d 724 (Tex. Ct. App. 1997), the Court held that
reversal of the supersedeas judgment discharges the surety from
its obligation as a matter of law.
"To hold otherwise would
violate the rule established by our own supreme court that "[t]he
sureties are no further bound than they have contracted to
be.["]"
Amwest, 949 S.W.2d at 729 (citation omitted).
See also
Holmes v. United States Fidelity & Guaranty Co., 844 S.W.2d 632
(Tenn Ct. App. 1992); Kennedy v. Miller, 528 N.E.2d 406 (Ill.
App. Ct. 1988); Kroll v. Crest Plastics, Inc., 369 N.W.2d 487
(Mich. Ct. App. 1985); Kirkpatrick v. Munn, 181 So.2d 150 (Miss.
1965); Kulhanjian v. Moomjian, 105 So.2d 783 (Fla. 1958); Harp v.
American Surety Co. of New York, 311 P.2d 988 (Wash. 1957).
We believe that Kentucky case law and the language of
the bond in question mandate the same outcome in this case.
Kentucky courts have recognized that the extent of a surety's
liability is to be determined from the terms of the surety
contract, and the surety is not obligated to pay a judgment
unless it is "within the purview of the agreement between surety
and principal."
Ohio Casualty Ins. Co. v. Ky. Natural Resources
and Environmental Protection Cabinet, Ky. App., 722 S.W.2d 290,
292 (1986).
Furthermore, a judgment which is reversed on direct
appeal is to be treated as if it has never been entered.
Clay v.
Clay, Ky. App., 707 S.W.2d 352, 353 (1986).
In this case, the bond specifically references the
judgment entered by the trial court on July 14, 1992, and
-10-
promises to satisfy the judgment only if the appeal is dismissed,
or the judgment is affirmed or modified on appeal.
As the
original damages judgment was reversed, we are to treat it as if
it had never been entered.
Thus, the bond was discharged by
entry of our earlier opinion as a matter of law and the trial
court erred in entering judgment against Cumberland as surety on
the supersedeas bond.
III. DOES THIS COURT HAVE JURISDICTION TO
HEAR CUMBERLAND'S CLAIMS REGARDING DISCHARGE
OF THE SURETY BOND?
MFT argues that this Court lacks jurisdiction to
address the issue regarding discharge of the bond.
Miller
contends that since Backer's motion to discharge the bond was
denied and because Backer did not appeal from the trial court's
entry of judgment following the retrial, the judgment is final
and we cannot consider Cumberland's claims.
We disagree.
First, as discussed supra, Cumberland should have been
permitted to intervene in order to protect its interest on the
bond.
Once it is permitted to intervene in accordance with this
opinion, it has the right to request dismissal of the bond and
the trial court will have no choice but to discharge the bond in
accordance with the terms of this opinion.
The fact that Backer
has not appealed from the second judgment has no bearing on our
decision that Cumberland should have been permitted to intervene
to protect its interest on the bond.
IV. IS A MOTION FOR INTERMEDIATE RELIEF
PURSUANT TO CR 76.30 THE
PROPER METHOD TO CHALLENGE A TRIAL COURT'S
-11-
RULINGS REGARDING
SUPERSEDEAS BONDS?
Cumberland asks us to rule whether a trial court's
order either increasing or decreasing a supersedeas bond is final
and appealable or subject to our review only through a motion for
intermediate relief pursuant to CR 76.33.
We answered this
question quite clearly in Industrial Redistribution Center, Inc.
v. Plastipak Packaging, Ky. App., 706 S.W.2d 2 (1986), where we
held:
The appellee who has reason to believe a
supersedeas bond is defective or the surety
is insufficient should file a motion in the
trial court. The motion should be supported
by an affidavit giving grounds for the
action. If after the hearing on the motion,
the trial court finds the supersedeas
defective or the surety inadequate, it may
direct action it deems appropriate. This may
include requiring new or additional surety.
A party who believes the trial court abused
its discretion may file a motion for
intermediate relief in the appeal pending in
the appellate court.
Industrial Redistribution, 706 S.W.2d at 3.
As this Court held
that the trial court abused its discretion in ordering an
increase in its supersedeas bond by an order entered October 28,
1996, the balance of the issues raised on appeal by Cumberland in
No. 96-CA-1985-MR are moot.
Having considered the parties' arguments on appeal, the
trial court's order denying Cumberland's motion to intervene is
reversed and this matter is remanded to the trial court with
instructions to discharge Cumberland's obligation under the bond.
SCHRODER, JUDGE, CONCURS.
-12-
DYCHE, JUDGE, CONCURS IN RESULT ONLY.
-13-
BRIEF AND ORAL ARGUMENT FOR
APPELLANT:
BRIEF AND ORAL ARGUMENT FOR
APPELLEE, MANNING FAMILY
TRUST:
Penny R. Warren
Maureen D. Carman
Lexington, KY
William A. Dykeman
Winchester, KY
-14-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
