Article

Prior History: 109 Cal.Rptr.3d. 77 (Ct. App. 2010), noted in 2011 ANNUAL REVIEW OF INTERNATIONAL BANKING LAW & PRACTICE at 549.

Note: In order to obtain an appeal bond to stay enforcement of a judgment for breach of contract, D.L. Falk Construction Inc. (Applicant/Judgment Debtor) posted a standby LC for USD 954,070. When the California Court of Appeals reversed the judgment, Applicant/Judgment Debtor sought to recover appellate costs including USD 99,289 in connection with a loan needed to obtain the standby and a USD 1,784 fee needed to extend the credit line. Under the California Rules of Court, Rule 8.278(d)(1)(F), a party may recover the reasonable cost to procure a surety bond, including the premium and cost to obtain a standby as collateral.

While the trial court permitted Applicant/Judgment Debtor to recover USD 950 in courier and administrative fees and USD 28,650 for the bond premium, it denied costs related to the interest incurred when borrowing the funds needed to obtain the standby. Applicant/Judgment Debtor appealed the trial court's refusal to reimburse costs associated with the loan and invited a broader interpretation of what constituted a recoverable cost of a surety bond.

The Supreme Court of California, in an opinion by Cantil-Sakauye, C. J., affirmed, concluding that the statute did not extend to Applicant/Judgment Debtor's interest payments on the loan to obtain the standby and such an extension "would be inconsistent with the historic principle that cost provisions are to be strictly construed." The Judge stated that neither the language of the rule nor prior judgments allowed the recovery of costs that were not directly connected with the standby. The Judge observed that costs associated with borrowing the funds necessary to acquire the standby are not direct costs, emphasizing that while a loan was "a means to acquire assets to satisfy the judgment ... a letter of credit [is] a means to verify that assets are available to pay the judgment."

[JEB/dm]

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