Louisiana Bank & Trust Co., Crowley v. Boutte

• Decision Date: 24 February 1975
• Docket Number: No. 55332,55332
• Citation: 309 So.2d 274
• Parties: LOUISIANA BANK AND TRUST COMPANY, CROWLEY, Louisiana v. Mrs. Jewel B. BOUTTE et al.
• Court: Louisiana Supreme Court

Page 274

309 So.2d 274

LOUISIANA BANK AND TRUST COMPANY, CROWLEY, Louisiana v. Mrs. Jewel B. BOUTTE et al.

No. 55332.

Supreme Court of Louisiana.

Feb. 24, 1975.

Rehearing Denied March 31, 1975.

Donald J. Tate, Tate & Tate, Mamou, for defendant-applicant.

Oscar W. Boswell, Reggie, Harrington & Boswell, Homer Ed Barousse, Jr., Edwards, Stefanski & Barousse, Crowley, for plaintiff-respondent.

DIXON, Justice.

Louisiana Bank and Trust Company of Crowley sued Rex Rice Company, Inc. and Lake Rice Mill, Inc., claiming a balance due on promissory notes in the amount of over $600,000, and joined in the same suit defendant Matthew L. Hanagriff and three other persons under 'continuing guaranty' agreements, alleging that the defendants were liable for the debts of Rex Rice Company, Inc., the principal debtor.

While the case was pending, a compromise agreement released the parties defendant with the exception of Hanagriff, who did not join the compromise agreement, and against whom the plaintiff bank reserved its rights.

There was judgment in the trial court in favor of plaintiff and against defendant, which judgment was amended and affirmed in the Court of Appeal. Louisiana Bank & Trust Co. v. Boutte et al., La.App. 298 So.2d 884 (1974).

We granted writs on the application of defendant Hanagriff to determine the effect of the 'continuing guaranty' agreement. Before us the defendant argues that his obligation under the contract of guaranty had prescribed; that the release of the principal debtor released the defendant, who was a surety; that the plaintiff creditor received immovable and other property in the payment of the principal debt, resulting in the full discharge of the surety under C.C. 3062; and, finally, that defendant's property had been illegally subjected to attachment.

The record reveals that Rex Rice Company, Inc. was indebted to the plaintiff bank in 1962. On May 18 of that year the 'continuing guaranty' agreement was executed and signed by the four shareholders and directors of the Rex Rice Company, Inc., including the defendant Hanagriff. The complete agreement is reproduced in footnote ¹. This suit was filed March 25 1969, and a writ of attachment was issued, seizing Hanagriff's home.

Release of the Principal Debtor

In the interval between the filing and the trial of the suit, three compromise agreements had been executed, the effect of which was to convey property from Rex Rice Company, Inc., Jack R. Smith, Mrs. Louie F. (Hattie F.) Broussard and Mrs. Jewel B. Boutte, the other three shareholders and directors of Rex Rice Company, Inc., to the plaintiff bank. Those parties were released from further liability. The bank reserved its rights against Hanagriff. Numerous other parties were involved in the compromise agreements, including another bank and other creditors of Rex Rice Company, Inc. Judgment was rendered against Hanagriff alone on June 7, 1973, following a trial on the merits on April 10, 1973. At the trial, it was shown that the balance due on Rex Rice Company, Inc. indebtedness to the plaintiff bank was $477,021.46, all of which had accrued following the execution of the 'continuing guaranty' agreement. Since the 'continuing guaranty' was for a sum of $200,000, the trial court rendered judgment against Hanagriff for one-fourth of that amount, because he was one of four signers. The Court of Appeal reduced the amount of the judgment against Hanagriff to $40,000 because Rex Rice Company, Inc. was also a solidary obligor, making Hanagriff's virile share one-fifth of the total, under C.C. 2103. ²

Defendant's argument that the release of the principal operated to discharge his, the surety's, liability depends upon classifying the instrument of 'continuing guaranty' as a contract of suretyship. Defendant relies on the following cases for the proposition that a surety bound In solido is a surety nevertheless: Jones v. Fleming, 15 La.Ann. 522 (1860); Lee v. City of Baton Rouge, 243 La. 850, 147 So.2d 868 (1963); Keller v. General Motors Acceptance Corp., 233 La. 320, 96 So.2d 598 (1957); Elmer Candy Co. v. Baumann, 150 So. 427 (La.App.1933); Brock v. First State Bank & Trust Co., 187 La. 766, 175 So. 569 (1937).

Jones v. Fleming supports the position of the defendant; the court there disregarded the surety's liability In solido and released him under C.C. 3063 when the principal debtor was granted a prolongation of term for payment. The substance of the holding in Jones v. Fleming, However, was disapproved in Jones v. Fleming, however, was disapproved La. 970, 76 So. 166 (1917), and was criticized in a comment at 39 Tul.L.Rev. 85 (1964--65), where the cases on solidary suretyship are collected and analyzed.

The other cases cited in defendant's brief do not support his position. Lee v. City of Baton Rouge involved the compromise of a tort claim, and held that the release of joint tort feasor with reservation of rights against the tort feasor who was primarily liable did not release the tort feasor who was primarily liable. The case has no application.

Keller v. GMAC, is not applicable. This was an action by a guarantor to recover the amount paid by an endorser and guarantor for negligently marking the note paid and returning it to the maker.

The Elmer Candy Co. case is not applicable. It merely held that the release of one solidary surety, or guarantor, without reservation released the other solidary guarantors.

Brock v. First State Bank, although containing language that 'a contract of guaranty in this state is equivalent to a contract of surety,' (175 So. 569, 570) held that guarantors, bound unconditionally and In solido for the payment of a note could be sued at the same time as the principal, and that the creditor could not be required to exhaust his remedies against the principal before suing the surety.

Like so many legal classifications, those of surety and solidary obligor are not mutually exclusive. Provisions for Solidary sureties are found in the Civil Code, and can be traced to Roman law. Planiol, Traite Elementaire De Droit Civil, translated by Louisiana State Law Institute, Vol. 2, No. 2351. ³

Civil Code 3045 ⁴ provides that the obligation of the surety toward the creditor, when the surety is bound In solido with the debtor, is 'regulated by the same principles which have been established for debtors In solido.'

Civil Code 2106, ⁵ with reference to the case in which there is a principal debtor, for whose benefit the principal obligation was incurred, provides that with regard to the principal debtor, the solidary codebtors 'are considered only as his securities.' As Planiol explains in Vol. 2, No. 768:

'Art. 1216 (C.N. 1216; C.C. 2106) has taken care of this situation by providing that in such a case the debt should be entirely borne by the debtor who is directly concerned, and that the others are to be considered in relation to him as his Sureties only; they have merely bound themselves in the interest of another. However, this assimilation with the surety is not true except in the relations of the co-debtors among themselves: 'with relation to him,' says Art. 1216, and not in their relations with the creditor. It is, in fact, an entirely different thing to obligate oneself as a solidary co-debtor and as a surety; the surety enjoys, against the creditor, various benefits which the solidary debtor does not enjoy.' (Emphasis added).

The effect of the application of these articles is that, as between the creditor and the solidary surety, the obligations of the surety are governed by the rules of solidary obligors.

The solidary surety waives the pleas of discussion and division. C.C. 3045; Brock v. First State Bank, supra, Hibernia Bank & Trust Co. v. Succession of Cancienne, 140 La. 969, 74 So. 267 (1917); Home Ins. Co. v. Voorhies Co., 168 So. 724 (La.App.1936); 2 Planiol, No. 2352. A remission to a simple surety does not discharge his co-sureties. C.C. 2205. As to solidary sureties, a remission by the creditor was held, in Elmer Candy Co. v. Baumann, supra, to have discharged the solidary co-sureties because the creditor failed to reserve his rights against the remaining sureties; otherwise, C.C. 2203 ⁶ provides that a discharge of one solidary co-debtor discharges the others.

Among the co-obligors, however, bound In solido, the legal relationships may be governed by the rules of suretyship. Both the simple surety and the solidary surety who pay the debt have a right of recourse agaisnt the principal debtor. ⁷ C.C 2106; Marfese v. Nelson,10 Orl.App. 288 (1913); 2 Planiol, No. 768, No. 2352.

There are exceptions, and sometimes the relationships among solidary sureties are not governed by the rules of suretyship. A simple surety who pays the whole debt can enforce contribution against the other sureties, but Only when he has paid 'in consequence of a lawsuit instituted against him.' C.C. 3058. But a solidary surety need not await suit before paying, in order to preserve his right of contribution. There is no reason to require such a delay, since pleas of discussion and division are not available to him. Ferriday v. Purnell, 2 La.Ann. 334 (1847); Bond v. Bishop, 18 La.Ann. 549 (1866).

We hold, therefore, that the compromise ⁸ and release of the principal debtor, Rex Rice Company, Inc., did not operate to release the solidary surety, Hanagriff.

Prescription

Nor is defendant aided by his reliance upon C.C. 3540, which provided the five year prescriptive period for bills and notes. Defendant argues that this contract of guaranty falls within 'all effects negotiable or transferable by indorsement or delivery . . .' referred to in C.C. 3540.

C.C. 3540 provides that prescription begins to run 'reckoning from the day when the engagements were payable.' The record discloses a course of business between Rex Rice Company, Inc. and the plaintiff bank from 1962 until August, 1964. There were substantial advances during that period, and nine brief intervals during...