Court Opinion

ID: 9729504
Source: CourtListenerOpinion
Date Created: 2023-08-26 14:38:29.88222+00
Date Added: 2024-06-11T13:36:07.241900
License: Public Domain

PIVARNIK, Justice,
dissenting.
I dissent to the holding of the majority that the guarantor is not released from his obligation. I would deny transfer or grant transfer and affirm the Court of Appeals as I feel it reached a proper result considering the facts and circumstances of this case.
Judge Buchanan, writing for the majority, acknowledged the application of Section 122(b) of the Restatement of Securities which provides that where the creditor releases a principal debtor the surety is discharged unless the creditor in the release reserves his rights against the surety. As Judge Buchanan pointed out, this contemplates that all of the rights of the surety against the principal are preserved pursuant to the contract originally entered into by the parties. The creditor merely saying that he reserves the right to proceed against the surety is not effective if the actual agreement the creditor enters into in settlement with the principal debtor amounts to a full release that does not preserve in the surety his rights against the principal. Hendershot v. Charleston Nat’l Bank (1989), Ind.App., 540 N.E.2d 615, 619.
As the Ohio Supreme Court stated in Gholson v. Savin (1941), 137 Ohio St. 551, 560, 31 N.E.2d 858, 863, “In fairness and honesty, the reservation agreement should in terms reserve not only the creditor’s right against the surety, but the surety’s right against the principal as well.” If the settlement agreement between the creditor and the principal can be construed as a covenant not to sue then all the rights of the surety are, in fact, preserved, since his rights to reimbursement and subrogation are unimpaired. Although he finds himself in an undesirable situation, he faces the responsibility he contracted to assume. That, however, is not what happened in this case as the Court of Appeals clearly pointed out.
*551The order of the bankruptcy court dismissed the adversary proceedings in its final order. It further provided:
Further ordered, that the Trustee shall pay to Charleston National Bank $425,-000 and Charleston National Bank shall accept $425,000 in full settlement of its $820,000 secured claim against the Debt- or’s estate....
Record at 62 (emphasis added). This is more than a covenant not to sue. This is a full release of the $820,000 obligation of the principal to the debtor. The surety has no subrogated rights reserved with which to pursue the principal debtor because the principal debtor no longer has obligation to the creditor. Citing authority to be found at 139 A.L.R. 84, 108 (1942) the Court of Appeals quoted:
The courts manifest no hesitancy to acknowledge that if the arrangement between the creditor and the principal debt- or in fact effects an absolute release of the latter in satisfaction of the indebtedness as originally contracted, an attempt to reserve remedies against the surety will be ineffective to prevent his discharge, because of the absence of any obligation formerly and still existing to which the reservation can attach.
540 N.E.2d at 620. We should not hesitate to follow this sound reasoning in the instant case in which the facts are not in dispute and demonstrate a full release.