Opinion ID: 10022
Heading Depth: 2
Heading Rank: 1

Heading: The Nature of the Directors' and Officers' Obligation

Text: 8 Wilhite's first theory of recovery against Schendle is that the Settlement Agreement alternatively created either a solidary obligation or a joint and indivisible obligation among the Bank's former director's and officers. Under Louisiana law, either of these types of obligations is enforced under the rules governing solidary liability, and would give Wilhite a right of contribution against Schendle. 2 9 In its ruling, the district court found that the Settlement Agreement created neither of these types of obligations, but instead created a joint and divisible obligation with no right of contribution. We agree. 10 In order to have a solidary obligation under Louisiana law, the agreement must demonstrate an express, written intent for the parties to have such an obligation. 3 Although the words in solido or solidary are not necessarily required, there may be no doubt as to the parties' intention on this matter. 4 Applying this strict standard, the Louisiana Supreme Court has determined that while the phrase we promise to pay is insufficient to create a solidary obligation, a reference to our promise to pay is sufficient to create one. 5 11 Wilhite contends that the language of the Settlement Agreement in this case is more akin to the latter phrase, because the Agreement refers to the Bank's directors and officers as a group, and also refers to only one payment and one release. We disagree. The portions of the Settlement Agreement cited by Wilhite do not amount to an express stipulation of solidary liability. In order to create solidary liability, Louisiana law requires more than a solidary tenor to an agreement. 6 Furthermore, paragraph two of the Settlement Agreement specifically provides that: 12 The former officers and directors agree to pay, and hereby pay, and the RTC agrees to receive and hereby acknowledges receipt and sufficiency of the sum of $750,000.00 cash (the Settlement Proceeds). 13 If one substitutes the word we for the former officers and directors, it is clear that this language is analogous to the phrase we promise to pay, and creates a joint obligation among the parties. 7 14 Under Louisiana law, such a joint obligation may be either divisible, or indivisible, depending on the nature of the object of performance and the intention of the parties. The obligation is divisible if the object of performance is susceptible of division. 8 It is indivisible if the object of performance is incapable of division or if the parties intend to make an otherwise divisible performance indivisible. 9 In this case, the directors' and officers' obligation under the Settlement Agreement was a financial payment to one entity. We agree with the district court that by nature, such a monetary payment is susceptible of division. Wilhite maintains, however, that the Settlement Agreement demonstrates an intent to make the financial obligation indivisible among the directors and officers. 15 We look to the Settlement Agreement as a whole to determine the intent of the parties on this issue. 10 As previously discussed, paragraph two demonstrates an intent to avoid a solidary obligation. Wilhite argues, however, that other provisions in the Settlement Agreement show the intent to make the joint obligation indivisible. He first relies on the language of paragraphs three and four, which read as follows: 16 3. In consideration of the payment of the Settlement Proceeds, the RTC does hereby release and discharge the former officers and directors ... 17 4. In consideration of the release granted herein above by the RTC, the former officers and directors hereby release and discharge the RTC in all its various capacities.... 18 According to Wilhite, this language makes it clear that only one performance (the Settlement Proceeds) is expected by the RTC, and in return only one performance (a general release of liability) is given by the RTC. Wilhite maintains that the obligation must therefore be indivisible. In effect, he argues that one performance by law cannot be made up of divisible parts. This argument is weak and somewhat circular. Although the Settlement Proceeds is a singular mass, the agreement to pay in paragraph two provides that sum will be paid by the plural officers and directors. Thus, language regarding a singular performance still offers no insight into whether the parties responsible for that performance intended it to be divisible. Further, the nature of the return obligation on behalf of the RTC is on its face capable of division. The singular release of liability given to the seven directors is clearly capable of division into seven individual releases of liability. Thus, these provisions do not support Wilhite's argument. 19 Wilhite also argues that paragraph six of the Settlement Agreement evidences the necessary intent. That provision reads as follows: 20 6. Nothing in this Agreement shall be interpreted as a bar to any rights of the former officers or directors to indemnification or contribution from any other former officer or director as a consequence of their respective payments to the RTC in connection with this Agreement, nor shall it be construed as an expansion of any rights which may exist in the absence of this Agreement. 21 Wilhite insists that this clause leads to the conclusion that the parties intended to make the obligation indivisible. He contends that this clause creates the right to seek indemnification or contribution from the other former directors and officers signing the Settlement Agreement. We disagree. The language, nothing in this Agreement shall be interpreted as a bar to any rights ... to indemnification or contribution as a consequence of their respective payments to the RTC ... does not indicate that it is creating new rights within the Agreement. Instead, the passive language leads us to conclude that the paragraph merely preserves rights that may exist outside of the Settlement Agreement. This conclusion is bolstered by the additional language, nor shall [the Agreement] be construed as an expansion of any rights which may exist in the absence of this Agreement. That language specifically indicates that paragraph six does not create new rights of contribution. 22 In sum, there is no evidence that the directors and officers intended their obligation to the RTC to be indivisible. The district court correctly concluded that the Settlement Agreement created a joint and divisible obligation for the Bank's directors and officers, and that there is therefore no right of contribution among them. 23