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States, reverses, so far as negotiable instruments are concerned, the rule of suretyship generally established, and permits a creditor to covenant not to sue or to forbear proceeding against one of several persons jointly liable on the instrument, though the covenantee is the principal debtor and known to be such, and the creditor's rights against the surety are not in terms reserved.55
Whether consideration received from one joint debtor must be credited in proceedings against another.
If it be assumed that an agreement made by a creditor with a joint, or a joint and several debtor, does not discharge the remaining debtors, either on the technical principles of the common law governing joint debtors, or on the principles of suretyship, it may still be asked are these remaining debtors entitled to credit for the consideration paid by the debtor who received a covenant or qualified release, or are they liable for the whole debt without deduction? The answer to this question seems to depend on the terms of the agreement made by the creditor. If A. and B. are jointly liable to C. for $100, C. may covenant not to sue A. in consideration of the payment of $25 on the debt, or in consideration of the payment of a separate and additional sum of $25; just as a creditor may agree to forbear suing an individual debtor in consideration of the payment of part of the debt or in consideration of an additional sum.56 But in the absence of clear evidence of a contrary intention, where a creditor covenants not simply for temporary forbearance, but permanently never to sue one of several debtors, it should be presumed that the payment made by that debtor in consideration for the covenant is a payment on account of the debt, and therefore to that extent the debt is discharged as to all the debtors.57
55 This was so held in Vanderford v. Farmers' Bank, 105 Md. 164, 66 Atl. 47 (1907); Bradley Engineering Co. v. Heyburn, 56 Wash. 628, 106 Pac. 170 (1910); Cellers v. Meachem, 49 Or. 186, 89 Pac. 426 (1907); Wolstenholme v. Smith, 34 Utah 300, 97 Pac. 329 (1908); Richards v. Market Exch. Bank Co., 81 Oh. St. 348, 90 N. E. 1000 (1910). But see contra, Fullerton Lumber Co. v. Snouffer, 139 Ia. 176, 117 N. W. 50 (1908); Farmers' Bank v. Wickliffe, 134 Ky. 627, 121 S. W. 498 (1909); Fritts 0. Kirchdorfer, 136 Ky. 643, 124 S. W. 882 (1910). See the discussion of this matter by Professor Crawford D. Hening in 59 Univ. Pa. L. Rev. 532.
56 See Langdell, Summary of Contracts, $ 54, p. 70.
67 See Carroll v. Corbitt, 57 Ala. 579 (1877). This is expressly so provided in many of the statutes referred to below.
Rights of a joint debtor who has received a covenant that he shall not be sued, or a qualified release.
The effect of a covenant not to sue one of several joint debtors or of a release of one with a reservation of rights against the others has been considered from the aspect of the creditor. The same question may be considered from the aspect of the debtor who has received the covenant or release; and it may be premised that if the undischarged joint debtors are forced by any means without their consent to pay more than their share of the joint debt, they can in turn enforce a claim for contribution against the debtor or debtors who received the covenant or qualified release.58 What then are the rights of a joint debtor discharged by the creditor, but thus forced to contribute by a co-debtor? The answer would seem to depend upon the construction of the covenant or release which he has received from his creditor. It seems possible for a creditor to covenant with a joint debtor that not only shall the covenantee be free from direct liability to the creditor, but also that he shall not be made indirectly liable by being forced to contribute on account of payments made by the other joint debtors. If such is the true meaning of a creditor's covenant, the covenantee when forced to contribute by the other debtors would have an action at law against the covenantor to recover the amount of his contribution, and in order to avoid circuity of action the covenantee would be entitled to relief in equity as well as at law for the substantial enforcement of the covenant:
“The intention of the parties is carried out by allowing the creditor to take payment (judgment?] at law, leaving the party who holds the covenant to his remedy in equity for a specific performance, by which he is fully protected, not only from paying more directly, but if there be sureties, by restraining the creditor from collecting any amount out of them, because that would subject him (the covenantee] to their action, and thus indirectly violate the covenant, or if there be other principal obligors, by restraining the collection of any more than an aliquot part of the debt, or any amount that would subject the party (covenantee) to an action for contribution." 59
58 Hutton v. Eyre, 6 Taunt. 289 (1815); Price o. Barker, 4 E. & B. 760, 780 (1855).
59 Russell v. Adderton, 64 N. C. 417 (1870). Quoted with approval in Craven v. Freeman, 82 N. C. 361, 365 (1880). See also Kirby v. Taylor, 6 Johns. Ch. (N. Y.) 242, 253 (1822), where Chancellor Kent construed a covenant not to sue one joint obliger as amounting in effect to an agreement to discharge that obligor and also to discharge a surety from liability for his debt.
But this is not the necessary construction of a covenant not to sue. It is questionable whether such a covenant can be extended by implication to mean that the covenantee shall not be sued by anyone on account of the debt.60 Certainly, if the creditor by his covenant or release expressly reserves his right against the other joint debtors, the agreement must then necessarily be construed as binding the creditor to refrain only from direct proceedings against the debtor who receives the covenant or release, but not to hold that debtor harmless from such liability as may come to him indirectly after the debt has been enforced against other joint debtors. As has been seen, even though the debtor receiving the covenant or release is known to be the principal debtor, a right may be reserved against the other joint debtors though known to be merely sureties.61 And the enforcement by the sureties of their right to indemnification against their principal will give the latter no right against the creditor,
"for, when the right is reserved, the principal debtor cannot say it is inconsistent with giving him time that the creditor should be at liberty to proceed against the sureties, and that they should turn round upon the principal debtor, notwithstanding the time so given him; for, he was a party to the agreement by which that right was reserved to the creditor and the question whether or not the surety is informed of the arrangement is wholly immaterial.”62
But even where the creditor expressly reserves a right against other co-debtors than the one released, and therefore may in a circuitous manner compel the one released to pay a portion of the debt, by rendering him liable to a suit for contribution, or indemnity, it seems the creditor would be liable for breach of covenant if he himself should levy execution directly on the debtor to whom he had given a release. 63
60 The implication was held not permissible in Mallet v. Thompson, 5 Esp. 178 (1804); and this conclusion seems necessarily involved in any unqualified statement that a covenant not to sue one joint debtor does not discharge the others, for if such a covenant were construed as meaning that the covenantee should be sued by no one, to avoid circuity of action the covenantor in some cases at least ought not to be allowed to sue the others. See supra, p. 215, n. 50.
61 Bateson v. Gosling, L. R. 7 C. P. 9 (1871). And see cases cited supra, p. 212, n. 38.
62 Bateson v. Gosling, L. R. 7 C. P. 9, 15 (1871). To the same effect are Nevill's Case, L. R. 6 Ch. 43, 47 (1870); Parmelee v. Lawrence, 44 II. 405, 411 (1867).
The principles which have been set forth above, as established by the common law, still remain unaltered by statute in the majority of the states. In a number of states, however, it has been provided that a creditor may release or make a compromise with one joint debtor without discharging others. 64 The effect of such statutes seems to be to make a release of a joint debtor, in substance equivalent to a covenant not to sue or to a release with reservation of rights at common law. The most important question under such statutes is how far the rights of sureties are affected. In many of the statutes it is expressly provided that the right of contribution against other joint debtors shall not be affected. In some statutes it is expressly provided that when a joint debtor released is a principal debtor, or when a debtor not released is a mere surety, the statute is inapplicable.65 Under such statutes the rule that a surety is discharged by the discharge of the principal debtor, without the surety's consent and without reservation of rights, apparently remains in force.66
63 In Solly v. Forbes, 2 B. & B. 38 (1820), the action was brought against joint debtors Forbes and Ellerman; the latter had been given by the creditors a release with a proviso reserving all rights against Forbes. The counsel for the defendant urged that this release discharged the claim altogether, but the counsel for the plaintiff argued (at page 45): “The present suit is quite consistent with the provisoes, for Ellerman is sued jointly with Forbes on a joint debt; Ellerman is only joined for conformity, and if he or his property be taken in execution, he has his remedy by an action for damages on this deed, taking it as a covenant not to sue.” To this part of the argument the Court in its opinion said: “It is not necessary now to say anything as to any ulterior remedy the defendant may have or suppose himself to have: In this respect he will act as he may be advised, and as circumstances may seem to require.”
64 Cal. Civ. Code (1906), § 1543; Colo. Rev. Stat. (1908), $8 3605, 3606; Conn Gen. Stat. (1902), $ 655; Minn. Rev. Laws (1905), $ 4283; Mo. Rev. Stat. (1909), § 2777; Mont. Rev. Code (1907), 88 7135, 7136; Nev. Comp. Laws (1900), 88 2739, 2741; N. Y. Debtor & Creditor Law, $ 230, Birdseye's Cumming & Gilbert's Consol. Laws (1909); Ohio Gen. Code (1910), 88 8079-8084; R. I. Gen. Laws (1909) (like Ohio); S. C. Civ. Code (1902), 88 2841-2843; Utah Comp. Laws (1907), 88 2037, 2038; Vt. Pub. Stat. (1906), 88 1528, 1529; Va. Code (1904), $8 2856, 2857; Wis. Stat. (1898), $$ 4204, 4205.
& See statutes cited supra of California, Minnesota, Utah, Vermont, Wisconsin. 66 See Harrier v. Bassford, 145 Cal. 529, 538 (1904).
The same construction would doubtless be adopted in the absence of express provisions in the other states under consideration.67
In the statutes of a few states the suretyship relation between joint debtors, each of whom is primarily liable for a share of the debt, is recognized; and acceptance of the consequences of the relation is indicated by provisions that a release of one joint debtor entitles the others to credit on the debt of the full portion which the released debtor was previously bound to pay.
In a few of these states, however, the mistake seems to have been made of assuming that when joint debtors are each primarily bound to pay a share of the debt, they are necessarily bound each to pay an equal share, for it is provided that a release of a joint debtor entitles the others to credit on the debt of an equal share thereof according to the number of debtors.69 It is obvious that the credit should be for the amount for which the debtor released was primarily liable, whether that was a ratable portion or not, unless a larger sum had in fact been paid by the debtor released. In the latter event the credit should be for the full amount paid.
In Utah and Wisconsin it is provided that the statutory permission to release one joint debtor shall not be so applied as to permit a principal to be released without the discharge of sureties.70 This provision perhaps has the effect of making it impossible for a creditor to release a joint debtor who is a principal and still preserve even by express reservation his rights against sureties.
Samuel Williston. HARVARD LAW SCHOOL.
67 State v. Matson, 44 Mo. 305, 308 (1869); Lower v. Buchanan Bank, 78 Mo. 67, 69 (1883).
68 See statutes cited supra of Colorado, Minnesota, Montana, Nevada, Vermont and Virginia. So it was held in Lower o. Buchanan Bank, 78 Mo. 67, 69 (1883), and in Morgan v. Smith, 70 N. Y. 537 (1877), that the common-law rule that the release of one jointly bound surety discharges his co-sureties was abrogated by the state statute; but that unreleased co-sureties were thereafter liable only for the balance remaining after deducting the discharged surety's share.
69 See statutes cited supra of Minnesota, Nevada and Vermont. 70 See statutes cited supra of Utah and Wisconsin.