2

Can a creditor double their money after a default by joint debtors?

In other words, lets say that two people jointly owe a bank $100,000 and both are fully responsible for the loan. The loan goes into default.

Now, obviously the bank (or other creditor) can sue both of the debtors separately if the bank wishes. This could potentially result in two judgements, each for $100,000 against both of the debtors. Thus, it would appear that the bank has doubled its money. Is there anything that can stop this from happening?

  • The bank could only be awarded the 100,000 plus all penalties and associated costs and fees. – user15669 Feb 24 '18 at 19:45
6

This is called double recovery, double compensation or over-recovery, and it is usually prohibited. The rule against double recovery is also known as the one-satisfaction rule. Courts may give effect to the rule by:

  • refusing to enforce a judgment under the relevant civil procedure rules to the extent that it has already been recovered from a co-defendant,

  • deducting damages already recovered from the amount awarded in any subsequent lawsuit, or

  • ordering the restitution of doubly-recovered payments under the doctrine of unjust enrichment.

The rule is an ancient principle of equity which developed over many centuries. The precise way in which the rule will be applied today depends on the jurisdiction and the nature of the claim. I'll outline two 18th century cases which establish the basic principle. For further information, consult a civil procedure textbook in your jurisdiction.

Two early cases establishing the unjustness of double recovery

In Moses v Macferlan (1760) 2 Burrow 1005, Moses and Macferlan settled a debt of £26 by agreeing that Moses would pay Macferlan £20 and indorse over four promissory notes to the value of 30s each (£6 total). Macferlan agreed to release Moses from liability as an indorser, but when Macferlan failed to recover the value of the notes from the issuer, he sued Moses in the Court of Conscience. Because that court's jurisdiction was limited to debts of up to 40s, it could not consider the terms of the £26 settlement and held Moses liable. Moses paid the £6, but successfully recovered it in the Court of King's Bench. Lord Mansfield said (at 1009):

Money may be recovered by a right and legal judgment; and yet the iniquity of keeping that money may be manifest, upon grounds which could not be used by way of defence against the judgment.

In Bird v Randall (1762) 3 Burrow 1345, a journeyman (Burford) contracted to work for a silk dresser (Bird) for five years. After just over a year, Burford left. Bird sued and obtained a judgment against Burford. Bird then sued Randall for 'enticing and seducing' Burford out of his service. After the case against Randall was commenced, but before it went to trial, Burford paid the first judgment. Randall then argued that Bird's action could not be maintained. Lord Mansfield said (at 1353):

[T]he plaintiff must recover upon the justice and conscience of his case, and upon that only ... the penalty recovered by him from the servant was actually received by him before the present action came on to be tried; without any sort of difficulty ... [this] is against conscience ... If he had actually recovered it, through the defendant's not knowing "that the penalty had been paid," an action would lie against him, for money had and received: like the case out of the court of conscience, not long since determined in this court [Moses v Macferlan].

The double recovery rule in the modern United States

In the scenario posed in the question, any attempt at double recovery is likely to be rejected without the need for detailed legal argument. Such a straightforward case would probably be settled without litigation, on terms providing for the debt to be apportioned between the joint debtors. But assuming that this doesn't happen, in a federal case, rule 60(b)(5) of the Federal Rules of Civil Procedure would apply:

On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons ... the judgment has been satisfied, released, or discharged[.]

Different rules and procedures apply in the various State jurisdictions, but the underlying principles are generally similar. The theoretical and historical basis of the rule against double recovery, as an aspect of the law of restitution and unjust enrichment, continues to attract a great deal of academic and judicial attention in Commonwealth countries, although it seems to be of less interest to American lawyers: Saiman, 'Restitution in America: Why the US Refuses to Join the Global Restitution Party' (2008) 28(1) Oxford Journal of Legal Studies 99–126.

  • I think what you are missing here is that you are assuming that it is just one case handled by one judge. The situation I am describing is TWO SEPARATE cases handled by separate judges possibly in different states. Also, if the defendants are estranged, as is often the case in debt situations, they may often have no idea that the one has been sued successfully in some other court. So, the question still remains: how is "double recovery" prevented? If your answer is that the defendants must know each other and communicate with each other and coordinate a defense, that is a pretty weak idea. – Cicero Feb 25 '18 at 11:32
  • 1
    I made no such assumption: both Moses v Macferlan and Bird v Randall involved double recovery (or an attempt at it) in separate cases. As for double recovery in different states, Hartford Acc. Acc. Indem. Co. v. Chartrand, 145 N.E. 274, 239 N.Y. 36 (1924) is an example where restitution was ordered. There is no need for the defendants to 'coordinate a defense.' However, it is obviously necessary for them to know about each other's existence. – sjy Feb 25 '18 at 12:02
2

The creditor can try to double their profit through penalties that are as extreme as government regulation will allow. However, the debt of 100,000 cannot be turned into two debts owed of 100,000 each, even upon default. The law doesn’t allow a creditor to turn one principal debt owed into two principal debts owed. It can pursue multiple parties responsible for the one principle debt owed until its awarded the principal, interest, penalties, fees, costs, etc.

Reference:

FAIR DEBT COLLECTION PRACTICES ACT As amended by Pub. L. 111-203, title X, 124 Stat. 2092 (2010)

§808. Unfair practices A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limit- ing the general application of the foregoing, the following conduct is a violation of this section: **(1)**The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obli- gation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law

§810. Multiple debts If any consumer owes multiple debts and makes any single payment to any debt collector with respect to such debts, such debt collector may not apply such payment to any debt which is disputed by the consumer and, where applicable, shall apply such payment in accordance with the consumer’s directions

§1691d. Applicability of other laws **(c)**State laws prohibiting separate extension of consumer credit to husband and wife. Any provision of State law which prohibits the separate extension of consumer credit to each party to a marriage shall not apply in any case where each party to a marriage voluntarily applies for separate credit from the same creditor: Provided, That in any case where such a State law is so preempted, each party to the marriage shall be solely responsible for the debt so contracted. **(d)**Combining credit accounts of husband and wife with same creditor to determine permissible finance charges or loan ceilings under Federal or State laws When each party to a marriage separately and voluntarily applies for and obtains separate credit accounts with the same creditor, those accounts shall not be aggregated or otherwise combined for purposes of determining permissible finance charges or permissible loan ceilings under the laws of any State or of the United States. **(e)**Election of remedies under subchapter or State law; nature of relief determining applicability Where the same act or omission constitutes a violation of this subchapter and of applicable State law, a person aggrieved by such conduct may bring a legal action to recover monetary damages either under this subchapter or under such State law, but not both. This election of remedies shall not apply to court actions in which the relief sought does not include monetary damages or to administrative

  • Just saying they "can't" doesn't answer the question because it doesn't explain why they can't. As I said in my question, nothing stops a bank from suing the debtors separately and obtaining two judgements, so if you want to say they "can't" you need to indicate where in the process they are prevented from doing this. – Cicero Feb 24 '18 at 19:59
  • @Cicero since you didn’t indicate what country or jurisdiction this debt occurred in, nor did you specify they type of debt (revolving, etc..), I can’t give you the specifics in regards to the can’t, for wherever this is occurring; I’m simply giving a generic (like your generic question) response based on common US based debt collection laws, regulations and industry standards as they are known to me. – user15669 Feb 24 '18 at 20:20
  • If we assume US and any arbitrary state, is it demonstrable, with appropriate reference to case law, that it can't because... (again, with apt citations)? I don't see how debt collection laws, regulations and industry standards are at all relevant. Abstract away from regulated industries since banks are not the only creditors. Suing is not illegal under debt collection laws. – user6726 Feb 24 '18 at 20:41
  • 3
    @user6726: collecting a debt that has already been collected is illegal under debt collection laws, anywhere I know of. There are various ways of achieving this. In some jurisdictions, a single judgment is issued against two debtors; in others the judgment is for 'so much as has not been collected from...". Asking for specific laws without indicating where you are talking about is a waste of everybody's time. – Tim Lymington Feb 24 '18 at 20:46
  • I’m not familiar with debt collection laws in the Tribal region Afghanistan, so jurisdiction is relevant. Additionally I’ve assumed US on posts in the past on questions and found that not to be the case. – user15669 Feb 24 '18 at 21:39

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.