Where a creditor settles as against one debtor but wishes to reserve the right to pursue other debtors who are jointly and severally liable, the creditor should expressly reserve that right.

This was confirmed by the Court of Appeal in Chelsea Building Society v Nash. The defendant and her husband entered into a mortgage with Chelsea Building Society (Chelsea) secured upon their home. They fell into arrears and subsequently the house was repossessed and sold leaving a shortfall of £54,000. The defendant and her husband had separated. Chelsea reached a settlement agreement with the husband that he would pay £5,000 as a final payment in relation to the outstanding sum. Subsequently, Chelsea pursued the defendant initially seeking payment of £5 per month for 60 months and then seeking half of the outstanding sum. Chelsea contended that the settlement with the husband had only been in relation to his half of the outstanding debt although it could produce no evidence of this agreement. At first instance, the judge held that as there was no positive agreement between the husband and Chelsea that the defendant's agreement had been discharged, the defendant owed Chelsea approximately £27,000 and entered judgment for that sum. The defendant appealed on the basis of the general rule that where one debtor makes a settlement, the effect is to release all debtors.

The Court of Appeal, allowing the appeal, held that where a creditor wishes to reserve his rights against more than one debtor upon making a settlement to release a debtor from the debt, it should expressly reserve that right in respect of the other creditor. If there was no express reservation, the court could imply such a term into an agreement if it was necessary to do so. There was no express reservation here and, on the evidence, it was not necessary to imply into the agreement with the husband that Chelsea had reserved its rights to pursue the defendant. The claimant had failed to meet the burden of proof.

Things to consider

Clear wording should always be used when drafting settlement agreements to ensure that what is intended to be settled, is settled, and equally importantly, where the intention is to reserve rights as against other debtors, those rights are properly and expressly reserved.