BILL ANALYSIS Ó
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
AB 1856 (Wilk) Hearing Date: June 4,
2014
As Amended: April 21, 2014
Fiscal: No
Urgency: No
SUMMARY Would update California's Bond and Undertaking Law to
add cashier's checks and bonds and notes of the United States or
California to the list of items of value that may be deposited
with a court in lieu of a bond.
DESCRIPTION
1. Would provide that bonds or notes of the U.S. or California
(not just the bearer bonds and bearer notes of the U.S or
California that are referenced in existing law) may be
deposited with a court in lieu of a bond.
2. Would require that the deposit of a bond or note pursuant
to the authorization described immediately above be
accompanied by filing with the court and serving on all
parties and the appropriate officer of the bank holding the
bond or note, instructions executed by the person or entity
holding title to the bond or note that the treasurer of the
county where the judgment was entered is the custodian of
that account for the purpose of staying enforcement of the
judgment, and that the title holder assigns to the treasurer
the right to collect, sell, or otherwise apply the bond or
note to enforce the judgment debtor's liability.
3. Would provide that a cashier's check made payable to the
officer of the court, issued by a bank or savings
associations, authorized to do business in California and
insured by the Federal Deposit Insurance Corporation, may be
deposited with a court in lieu of a bond. Would require
that any money deposited using a cashier's check be
maintained by the officer of the court in an
interest-bearing trust account.
4. Would make other conforming changes to the Bond and
AB 1856 (Wilk), Page 2
Undertaking Law.
EXISTING LAW
1. Provides for the Bond and Undertaking Law (Code of Civil
Procedure Section 995.101-996.560). The Bond and
Undertaking Law applies to any bond or undertaking that is
executed, filed, posted, furnished, or otherwise given as
security pursuant to any state statute (Section 995.020).
"Bond" includes a surety, indemnity, fiduciary, or like bond
that is executed either by a principal and sureties or by
sureties alone (Section 995.140). "Surety" has the meaning
provided in Section 2787 of the Civil Code and includes
personal surety and admitted surety insurer. The terms
"bail," "guarantor," "bondsman," and "surety" mean "surety"
as used in the Bond and Undertaking Law (Section 995.185).
"Undertaking" means a surety, indemnity, fiduciary, or like
undertaking executed by the sureties alone (Section
995.190). "Officer" means the sheriff, marshal, clerk of
court, judge or magistrate, board, commission, department,
or other public official or entity to whom the bond is given
or with whom a copy of the bond is filed or who is required
to determine the sufficiency of the sureties to approve the
bond (Section 995.160).
2. Pursuant to the Bond and Undertaking Law, authorizes the
deposit of several different types of assets with a court in
lieu of a bond, including lawful money of the U.S., bearer
bonds and bearer notes, certificates of deposit payable to
the officer of the court, and insured savings accounts or
share accounts assigned to the officer of the court (Section
995.710).
COMMENTS
1. Purpose: This bill is sponsored by the Conference of
California Bar Associations to update the list of financial
instruments that may be deposited with a court in lieu of a
bond.
2. Background: Existing law allows parties to deposit cash or
other cash equivalents with the court, in lieu of a bond,
and prescribes the types of monetary instruments that are
acceptable for use in this context. California's Bond and
Undertaking Law was a product of the California Law Revision
AB 1856 (Wilk), Page 3
Commission. According to information obtained from the
California Law Revision Commission's website, the Bond and
Undertaking Law, enacted in 1982, was intended to
standardize what had previously been over 500 different
statutory provisions governing bonds and undertakings, and
bring sense and consistency to this area of the law.
The provisions of the Bond and Undertaking Law that this bill
proposes to amend read in much the same way they did, when
they were enacted in 1982. They refer to bearer bonds and
bearer notes backed by California or the United States, none
of which have been issued since the 1980s, and to the
Department of Financial Institutions, which was merged with
the Department of Corporations into the Department of
Business Oversight in 2013. These provisions also fail to
reference bonds and notes other than bearer bonds and bearer
notes, and fail to reference cashier's checks, which are
generally understood to be cash equivalents.
3. Discussion: According to this bill's sponsor, legislation
is necessary to ensure that all courts are statutorily
authorized to accept cashier's checks, California bonds, and
U.S. Treasury bonds as acceptable cash equivalents in lieu
of bonds. While many court clerks do accept these financial
instruments, some do not, absent a separate motion
requesting their authorization and subsequent court order
authorizing their acceptance. This bill would avoid the
need for attorneys to bring these motions and for courts to
issue these orders, and would ensure consistency among
courts across the state in the items deemed to be acceptable
financial instruments when deposited with a court in lieu of
a bond.
4. Should All Deposits In Lieu of Bonds Be Federally Insured?
One of the sections of law that this bill proposes to amend
(CCP Section 995.710) authorizes the deposit of several
different types of cash equivalents with the court in lieu
of a bond. Existing law requires most of these cash
equivalents to be federally insured by the Federal Deposit
Insurance Corporation or the National Credit Union
Association or to be guaranteed by an agency approved by the
Department of Financial Institutions. For example, CCP
Section 995.710(a)(3) authorizes the deposit with the court
of "certificates of deposit payable to the officer, not
exceeding the federally insured amount"; 995.710(a)(4)
authorizes "savings accounts assigned to the officer, not
AB 1856 (Wilk), Page 4
exceeding the federally insured amount"; 995.710(a)(5)
authorizes "investment certificates or share accounts
assigned to the officer, not exceeding the federally insured
amount"; and 995.710(a)(6) authorizes "certificates for
funds or share accounts assigned to the officer, not
exceeding the guaranteed amount."
Under existing law, the only type of security that is not
required to be federally insured when deposited with a court
in lieu of a bond is cash (see CCP 995.710(a)). This bill
proposes to treat cashier's checks deposited in lieu of a
bond just as cash is treated under existing law (i.e., in an
uninsured manner).
Should this bill be amended to require both cash and the
cashier's checks whose deposit in lieu of a bond the bill
would authorize to be maintained in accounts whose entire
balances are federally insured? It appears the answer is
no.
According to the Judicial Council, the court system currently
banks with Bank of America. Pursuant to Government Code
Section 16521, a bank is only eligible to receive demand or
time deposits from state or local entities, if that bank
deposits security with the State Treasurer equal to at least
110% of the amounts deposited with that bank. Thus, for
example, in order to be eligible to accept a $1 million
deposit from the courts, Bank of America must deposit at
least $1.1 million in eligible securities with the State
Treasurer. This excess security serves to protect state
deposits, and precludes a need for cash and cashier's checks
deposited with a court in lieu of a bond to be placed in
individual accounts, each of which is below the federal
deposit insurance limit.
5. Summary of Arguments in Support:
a. The Conference of California Bar Associations
(CCBA), sponsor of this bill, is seeking to update the
list of acceptable forms of security that may be
deposited with the court, to reflect current instruments
of unquestioned value, and thereby eliminate the need to
expend litigants' and courts' time and resources on
unnecessary motions to have these forms of security
approved. Making deposits in lieu of a bond can provide
equal or greater security to a judgment creditor, because
AB 1856 (Wilk), Page 5
the deposit is cash or a cash equivalent, rather than a
promise to pay. Deposits in lieu of bonds may be quicker
for the judgment debtor to obtain, and presumably less
expensive, because the judgment debtor will be spared the
cost of bond premiums.
However, the list of instruments acceptable for deposit
under the Bond and Undertaking Law has not been updated
since 1982. As a result, the list includes instruments
such as bearer bonds and bearer notes, which are no
longer issued, but does not include common instruments of
acknowledged stability and value, such as U.S. Treasury
bonds, bonds issued by the State of California, and
cashier's checks, which are the functional equivalent of
cash. "AB 1856 is a straightforward and valuable bill to
improve the administration of justice in California for
the benefit of litigants, courts, and, by extension,
taxpayers."
b. The Appellate Courts Section of the Los Angeles
County Bar Association writes that California's Bond and
Undertaking Law serves a critical access to justice
function by providing mechanisms that allow litigants to
stay execution proceedings while they exercise their
right to appellate review of adverse money judgments.
The deposit in lieu of bond statutes have not been
amended since 1982. AB 1856 makes two important changes
that will facilitate the use of a deposit in lieu of a
bearer bond. Together, these changes will streamline the
procedure for making a deposit in lieu of a bond, and
help reduce the waste of resources, time, and money that
the current statute entails for everyone involved.
The Appellate Courts Section of the Los Angeles County Bar
Association requests that the author accept the amendment
which is summarized in 7a, immediately below. The
amendment will clarify the intent of the legislation to
eliminate the need for court approval of alternative to
bonds.
The California Appellate Law Group associates itself with
the letter submitted by the Los Angeles County Bar
Association, including the request for the amendment
summarized in 7a below.
6. Summary of Arguments in Opposition: None received.
AB 1856 (Wilk), Page 6
7. Amendments:
a. The author and sponsor plan to offer the following
clarifying amendment in Committee:
i. Page 2, line 5, after the second
comma, insert: without prior court approval
b. The following technical amendments are suggested to
more accurately reflect the intent of the bill's sponsor:
i. Page 2, line 7, after "States" insert:
or a cashier's check made payable to the officer,
issued by a bank, savings association, or credit
union authorized to do business in this state. The
money shall be maintained by held in trust by the
officer in an interest-bearing trust account deposit
or share accounts.
ii. Page 2, line 17, strike Treasurer and
insert: treasurer
iii. Page 2, lines 20 through 26, maintain
existing law by amending the bill as follows:
Certificates of deposit payable to the officer, not
exceeding the federally insured amount , or a
cashier's check made payable to the officer , issued
by banks or savings associations authorized to do
business in this state and insured by the Federal
Deposit Insurance Corporation. Any money deposited
using a cashier's check shall be maintained by the
officer in an interest-bearing trust account.
iv. Page 3, lines 3 through 8, amend as
follows: Certificates for funds or share accounts
assigned Share certificates payable to the officer,
not exceeding the guaranteed or insured amount,
issued by a credit union, as defined in Section
14002 of the Financial Code, whose share deposits
accounts are guaranteed insured by the National
Credit Union Administration or guaranteed or insured
by any other agency approved by that is not
unsatisfactory to the Commissioner of Department of
Financial Institutions Business Oversight .
AB 1856 (Wilk), Page 7
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Conference of California Bar Associations (sponsor)
Appellate Courts Section of the Los Angeles County Bar
Association
California Appellate Law Group
Opposition
None received
Consultant: Eileen Newhall (916) 651-4102