Louisiana Bank and Trust Co., Crowley v. Boutte
309 So.2d 274, 1975 La. LEXIS 5148 (1975)
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Rule of Law:
Under the Louisiana Civil Code, a surety who is bound 'in solido' with a principal debtor is governed by the principles of solidary obligations in relation to the creditor. Therefore, a creditor's release of the principal debtor does not discharge the solidary surety if the creditor expressly reserves its rights against that surety.
Facts:
- In 1962, Rex Rice Company, Inc. was indebted to the Louisiana Bank and Trust Company.
- On May 18, 1962, Matthew L. Hanagriff and three other shareholders of Rex Rice Company, Inc. executed a 'continuing guaranty' agreement with the bank.
- The agreement stipulated that the guarantors would be bound 'in solido' with Rex Rice Company for its debts up to $200,000.
- The agreement also contained clauses waiving the pleas of discussion and division and allowing the bank to grant releases and discharges to other parties without affecting the guarantors' liability.
- Following the execution of the agreement, Rex Rice Company accrued an indebtedness to the bank that ultimately exceeded the guaranteed amount.
- The bank entered into compromise agreements with Rex Rice Company and the other three guarantors, releasing them from liability.
- In these compromise agreements, the bank expressly reserved its rights to pursue collection from Hanagriff, who was not a party to the settlement.
Procedural Posture:
- Louisiana Bank and Trust Company filed suit against Rex Rice Company, Inc., Matthew L. Hanagriff, and three others in a Louisiana trial court.
- During the litigation, the bank obtained a writ of attachment and seized Hanagriff's home.
- The bank settled with all defendants except Hanagriff, against whom it reserved its rights.
- The trial court entered judgment in favor of the bank and against Hanagriff.
- Hanagriff, as appellant, appealed to the Louisiana Court of Appeal.
- The Court of Appeal amended the monetary award but affirmed the trial court's judgment of liability against Hanagriff.
- The Louisiana Supreme Court granted writs upon Hanagriff's application to review the Court of Appeal's decision.
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Issue:
Does the release of a principal debtor, with an express reservation of rights by the creditor, also release a guarantor who is contractually bound 'in solido' with the principal debtor?
Opinions:
Majority - Justice Dixon
No. The release of the principal debtor did not release the solidary surety. The court reasoned that under Louisiana Civil Code art. 3045, the obligation of a surety bound 'in solido' with the debtor is regulated by the same principles established for debtors 'in solido.' As between the creditor and the solidary surety, the obligations are governed by the rules of solidary obligors, which means the surety waives the pleas of discussion and division. Applying the rules for solidary obligors, Civil Code art. 2203 permits a creditor to discharge one co-debtor while expressly reserving its rights against the others. Because the bank explicitly reserved its rights against Hanagriff when it compromised with the principal debtor, Rex Rice Company, Hanagriff was not discharged from his obligation.
Concurring - Chief Justice Sanders
No. The defendant was not discharged. The reasoning relies squarely on Civil Code art. 2203, which allows for the remission of a debt for one solidary co-debtor without discharging the others, provided the creditor expressly reserves its rights against them. Since the compromise agreement contained such an express reservation, Hanagriff remained liable.
Concurring - Justice Barham
No. Hanagriff remains liable. However, the analysis should be simplified by viewing all defendants, including Rex Rice Company and the four guarantors, as principal co-obligors from the creditor's perspective. The question of who is a 'principal' and who is a 'surety' is a matter to be resolved among the debtors themselves, not in a dispute with the creditor. Since all were solidary co-obligors to the bank, the bank's release of some with an express reservation of rights against Hanagriff was legally effective.
Analysis:
This case clarifies the critical distinction between a simple surety and a 'solidary surety' in Louisiana law. It establishes that when a guaranty includes 'in solido' language, the guarantor's liability to the creditor is governed by the rules for solidary obligors, stripping them of traditional suretyship defenses like being released when the principal debtor is released. This precedent significantly strengthens a creditor's ability to structure settlements, allowing them to compromise with a principal debtor while preserving their right to full recourse against any guarantor who signed as a solidary obligor. The decision emphasizes that the specific language of a guaranty contract determines the rights and defenses available to the guarantor.
