Price v. Baker

352 P.2d 90, 143 Colo. 264

• Court: Supreme Court of Colorado
• Decided: May 31, 1960
• Docket: 18348
• Status: Published

Opinions

Mr. Justice Sutton

delivered the opinion of the Court.

This writ of error involves the question of whether a so-called covenant not to sue, as hereinafter described, is to be construed as a release in a tort action. The parties appear here in the same order as in the trial court where the court entered a judgment of dismissal in favor of defendant Baker upon his motion for summary judgment. We shall hereafter refer to Price and Kusserow by name or as plaintiffs and to the defendants by name. It appears that one of the defendants below, Charles L. Baker & Company, is insolvent and does not appear as a party to this writ of error.

Plaintiffs brought an action for damages for fraud and deceit against Charles L. Baker & Company, Charles L. Baker and C. M. Howell, based upon alleged false representations in connection with the sale of stock for $2500.00 each to Price and Kusserow and certain employment of the plaintiffs by Charles L. Baker & Company.

After the matter was at issue in the trial court Howell, in consideration of $1500.00, entered into an agreement with Price and Kusserow entitled “Covenant”, in which they agreed not to sue Howell for either of the matters then in issue, and in which Howell expressly denied liability and any admission of liability. The covenant stated that plaintiffs further “* * * expressly reserves (sic) the right to sue and continue to sue any other person or persons against whom they may have or assert any claim for loss or damage * * *.” arising out of the above mentioned transactions. Specific reference was then made to the reservation of the right to prosecute the suit against the other two defendants. The covenant then provided:

“It is further expressly understood and agreed that as against undersigned, their heirs, executors, administrators and assigns, this instrument may be pleaded as a defense in bar or abatement of any action of any kind whatsoever, brought, instituted or taken by or on behalf of the undersigned on account of said supposed claim or claims against the said C. M. HOWELL.”

A stipulation to dismiss as to Howell without prejudice was then filed with the trial court; the covenant was presented to the court by the remaining defendants, who were then permitted to amend their answer and move for the summary judgment, which motion was granted.

Plaintiffs assert that there is a split in the authorities on the question involved and urge that we adopt what they describe as the “modern trend” as expressed in some jurisdictions, which is to give full effect to the intention of the parties as revealed by such document and that the tendency of some courts is to also consider whether the injured party has been fully compensated for his loss or damages caused by the joint tort-feasors. They cite as authority Matheson v. D’Kane (1912) 211 Mass. 91, 97 N.E. 638; 39 L.R.A. (N.S.) 475; Ann. Cas. 1913 B, 267; Harmon v. Givens (1953), 88 Ga. App. 629, 77 S.E. (2d) 223; and Gronquist v. Olson (1954), 242 Minn. 119, 64 N.W. (2d) 159; and refer to discussions in 148 A.L.R. 1281; 1 Harper and James, The Law of Torts, §10.1 (1956).

For the reasons hereinafter set forth we believe the so-called modern trend to be wanting in reason and logic and we are not inclined to accept it as the rule of decision here. On the contrary we believe that the trial court was correct in its interpretation of this particular instrument and that the authorities cited by plaintiffs approving this type of instrument as a covenant not to sue are not persuasive or acceptable in Colorado.

This state has long followed the universal rule that the release of one joint tort-feasor is a release of all. Morris v. Diers (1956), 134 Colo. 39, 298 P. (2d) 957; also see Rust v. Schlaitzer (1933), 175 Wash. 331, 27 P. (2d) 571; 20 A.L.R. (2d) 1044. And the intention of the parties has no bearing upon the legal effect of a release. Morris, supra. Clearly an instrument designated a “release” and fully discharging one joint tortfeasor would release, as a matter of law, his fellow wrongdoers even if the same instrument expressly attempted to reserve the injured person’s claims or right to sue others. Morris, supra; Rust, supra. The same is true of a covenant not to sue which goes beyond the agreement not to sue to the point where it has the effect of a release. Clark v. Union Electric Light & Power Co. (1919), 279 Mo. 69, 213 S.W. 851.

In Roper v. Florida Public Utilities Co. (1938), 131 Fla. 709, 179 So. 904, and in Byrd v. Crowder (1933), 166 Tenn. 215, 60 S.W. (2d) 171, it was held that the indivisible joint liability was extinguished by using any wording that permits the instrument to be set up as a defense; thus any clause reserving the right to sue others, where the covenant states it is a bar or may so be used, is a fortiori held to be repugnant and thus void.

In Morris it was also pointed out that the rule widely followed is that an injured party can have only one satisfaction for his damages.

In Haney v. Cheatham (1941), 8 Wash. (2d) 310, 111 P. (2d) 1003, it was held following the reasoning in Rust, supra, that where an instrument is executed for the benefit of one joint tort-feasor, it is a “covenant not to sue” if it gives to the joint tort-feasor nothing more than a right of action against the covenantor in event of breach of such agreement by the institution of an action in return for payment made by him, but it is a “release” if it may be pleaded as a defense to defeat the action brought by covenantor.

Another reason for the rule, as we perceive it, is that liability for a tort is not a fixed and definitive sum, and the law concludes that the consideration paid, whatever it may be, extinguishes the claim itself, for who knows better than a plaintiff at what price he truly values his loss or injuries.

A corrollary to the reason for the rule could well be that the injured party should not be permitted to create degrees of liability as between wrongdoers. For example — in the case at bar — that one defendant may be able to discharge his liability for only a part of the claimed damage, when in law if he is liable at all he is liable for the total damage, as are the other defendants. It is true that these plaintiffs could have sued only defendant Baker in the first instance and make their total recovery, if any, from him, but this they did not do, and having made their election to sue the other defendants in the same action, are bound by the rules applicable thereto.

Covenants not to sue have a recognized status in the American system of jurisprudence though sometimes the difference between releases and such covenants is nebulous indeed and very difficult to distinguish with precision. See 4 Restatement, Torts, §885, and 20 A.L.R. (2d) 1044. Also see Walling v. Warren (1874), 2 Colo. 435, wherein such instruments are implicitly recognized and we are in full accord with that decision when covenants are properly drawn so as not to extinguish the cause of action.

As we view the problem, the determinative point here is not what did the parties intend, nor what was the consideration, but what was the legal effect of the instrument entered into with Howell? This is so because no matter what the contracting parties may label a document of this type, the courts will look at its substance rather than its form. Rust, supra.

In the case at bar the wording quoted has the effect of a release. See Rust, supra, Roper, supra, and Byrd, supra, which so held upon almost identical wording. The document goes further than a covenant not to sue for the breach of which Price and Kusserow would in turn be liable for damages. The clause in question allows the instrument to “be pleaded as a defense in bar or abatement of any action of any kind whatever * * These words effectively extinguish the indivisible right the plaintiffs had to proceed against Howell, and in our view could be no more effective than if the words “hereby release and forever discharge said claims” had been used. See Clark, supra. The use of the latter words would unquestionably release the other joint tortfeasors, and the use of the language in the so-called covenant not to sue, if distinguishable at all, is without a difference.

Prosser in “The Law of Torts,” 2d ed., p. 244, note 24, intimates that the philosophy of Rust, supra, has been rejected by the Supreme Court of Washington because of the holding and comments appearing in Richardson v. Pacific Power & Light Co. (1941), 11 Wash. (2d) 288, 118 P. (2d) 985. In passing we note that Prosser erroneously gives the citation of Richardson as being 160 P. , the latter case being in fact Pellett v. Sonotone Corp. (1945) 26 Cal. 2d Adv. 614, 160 P. (2d) 783, 160 A.L.R. 863, which is discussed infra.

In Richardson a telephone company lineman was electrocuted by a fallen power line. One of the issues was as to his possible contributory negligence. Another was whether a “Receipt and Release” which the widow signed and thereby acknowledged receipt from the ’phone company of full payment under its “benefit plan,” had discharged it from all claims and demands and whether it was in fact a release of her tort claim for culpability against the company. It was properly held that the instrument was not such a discharge and was not intended as such. It is to be noted that in Richardson the court cited Rust, supra, with approval as well as Haney v. Cheatham (1941) 8 Wash. 2d 310, 111 P. (2d) 1003, both cited by Prosser as probably not to be further followed. The court in Richardson, at page 317, said the trial court in considering the question should “ * * * look to its consideration, its effect, and the circumstances attending its execution.” (Emphasis supplied.) It then pointed out that the trial court treated the instrument as a covenant not to sue and found there was no consideration paid the decedent’s estate for its execution. The appellate court said it was not really a covenant not to sue but only a receipt for money owed under a contract. It also agreed with the trial court that there was no consideration received by the estate for the instrument so it wouldn’t be binding no matter what it was.

Richardson cannot be said to repudiate Rust and we think that Prosser is in error in so surmising.

Pellett was a tort action for damages and among the questions determined by the California court was the distinction between a release and a covenant not to sue. The court saying:

“The rule in this state, applied in many cases, is that a release of one joint tort feasor is a release of all (citing cases) but that a mere covenant not to sue one joint tort feasor does not release the others. (Citing cases.) There is authority in other jurisdictions for a contrary holding, where the one making the release reserves his rights against the others, if he has not received full satisfaction. See, Rest., Torts §885. This view is illustrated by McKenna v. Austin, 77 U.S. App. D.C. 228, 134 F. 2d 659, 148 A.L.R. 1253, which proceeds on the theory that it is a question of fact and intent whether a settlement is made in full satisfaction or merely as the best obtainable compromise; and that a partial, satisfaction taken in compromise does not discharge the other wrongdoers. It should be noted, however, that the McKenna case also recognizes the right to contribution among joint tort feasors, which is not permitted in this state. (Emphasis supplied.)

As pointed out in the McKenna case, the distinction between a release and a covenant not to sue is entirely artificial. As between the parties to the agreement, the final result is the same in both cases, namely, that there is no further recovery from the defendant who makes the settlement, and the difference in the effect as to third parties is based mainly, if not entirely, on the fact that in one case there is an immediate release, whereas in the other there is merely an agreement not to prosecute a suit. The rule regarding a covenant not to sue was apparently adopted as an exception to the strict release rule because the courts desired to modify the latter rule by indirection.

“ * * *

A release has been defined as the abandonment, relinquishment or giving up of a right or claim to the person against whom it might have been demanded or enforced (Black’s Law Dict.; Ballentine’s Law Dict.) and its effect is to extinguish the cause of action; hence it may be pleaded as a defense to the action. A covenant not to sue, on the other hand, is not a present abandonment or relinquishment of the right or claim, but merely an agreement not to enforce an existing cause of action. It does not have the effect of extinguishing the cause of action; and while, in the case of a sole tort feasor, the •covenant may be pleaded as a bar to the action in order to avoid circuity of action, a covenant not to sue one of several joint tort feasors may not be so pleaded by the covenantee, who must seek his remedy in an action for breach of the covenant. (Citing cases.).” (Emphasis supplied.)

160 A.L.R. at 871 says about Pellett:

“The court observed that the plaintiff did not expressly or by implication abandon or relinquish its claim against the covenantee or agree to accept the payments by the covenantee in satisfaction of his claims and that the agreement could not be pleaded as a defense by the covenantee. The court held that the agreement was not such an instrument as would operate to release other joint tort-feasors.” (Emphasis supplied.)

This same annotation at page 872 cites Gillette Motor Transport Co. v. Whitfield (1945) (Tex. Civ. App.) 186 S.W. (2d) 90, as holding that there is no bar when the instrument is drawn so as not to release the other defendants but is merely an agreement not to enforce any judgment secured. Another case, Ferrell v. Kingshighway Bridge Co. (1938) (Mo. App.) 117 S.W. (2d) 693, was cited to show that where by statute a right of contribution exists a different situation prevails.

The court in Pellett held that the instrument in question was in the nature of a covenant not to sue and allowed recovery by Pellett against Sonotone.

Though many jurisdictions are now adopting the rule urged by plaintiffs we point out that in at least two of them statutes exist which allow the right of contribution among joint tort-feasors. See Judson v. Peoples Bank (1954) 17 N.J. 67, 110 A. (2d) 24; Breen v. Peck (1958) 28 N.J. 351, 146 A. (2d) 665; Louisville Gas & Electric Co. v. Beaucond (1920) 188 Ky. 725, 224 S.W. 179 (wording of release not given; contribution not decided); in another jurisdiction the right of contribution exists by right of decision, see McKenna v. Austin (1943) 134 F. (2d) 659. McKenna with one well reasoned dissent goes into the theory and background of this entire problem and concludes that the rule here approved should not be further followed. Mr. Justice Rutledge speaking for the majority ably sets forth the grounds now urged upon us. We reject his reasoning and say the lone dissenter points out cogent reasons why it should not be the law.

Among the authorities cited by these plaintiffs is Gronquist, supra. We point out that though the court there said the intention of the parties is a question of fact and governs, that the wording in question was not such as would destroy the cause of action as in the case before us. Distinctions of various kinds can be found in decisions in a few of the other jurisdictions which have adopted the intent rule. For example see Gilbert v. Finch (1903) 173 N.Y. 455, 66 N.E. 133 (insurance company tried to release some directors of liability for malfeasance; held it could not be done; court also pointed out that they were not joint tort-feasors); Steenhuis v. Holland (1929) 217 Ala. 105, 115 So. (2d) 2 (action under Homicide Act (Code Sec. 5696) to construe a full release which court held was not a bar to a suit by personal representative).

It is also true that Roper, supra, involved a release and so is distinguishable from the instant case. It, however, does stand for the proposition that the right itself is extinguished when the wrong words are used in the instrument and that words of reservation of right used in a release are void.

Properly drafted covenants not to sue, whether drafted before suit, or during suit and labeled as a mere “covenant,” will permit compromise in accordance with established principles. Our holding recognizes that releases came first in the common law and that the covenant not to sue is a mere appendage or tail now trying to wag the dog. Intent or amount received can have no bearing on the problem once the right itself is destroyed as happened here.

The judgment is affirmed.

Mr. Justice Moore concurs in the result in view of the prior holding of this court in Morris v. Diers, supra.

Mr. Justice Day, Mr. Justice Frantz and Mr. Justice Doyle dissent.