Aрpellee Brunson was injured when an elevator in which he was a passenger fell from the upper floor of Maloof s Department Store to the lower floor. In three separate láwsuits, Brunson and his wife sued the owner, Maloof, the installer of the elevator, Divine, the builder of the department store, Prince, the manufacturer, American Chain and Cable, and the seller, Tull Equipment & Supply Co.
The Brunsons executed two settlement agreements. The first agreement provided for an interest free loan from Maloof and his insurance carrier to the Brunsons in the amount of $40,000 in exchange for a covenant not to sue. The second agreement was between the Brunsons and Divine and Prince (and their respective insurance carriers) and provided for an interest free loan of $25,000 to the Brunsons in exchange for a covenant not to sue. The agreements are similar in content, the agreement with Maloof being incorporated by reference in the agreement with Prince and Divine, which provides for (1) a covenant not to sue Maloof, Divine and Prince; (2) an agreement to repay the loans only out of the proceeds of any judgment or settlement obtained from appellants; (3) a pledge of these inchoate funds to Maloof, Divine and Princе as security; (4) an agreement to indemnify and hold harmless Maloof, Divine and Prince in the event that appellants attempt to obtain contribution or indemnity from them; and (5) an agreement to execute a full release following the end of litigation. The first $130,000 tо be recovered from the manufacturer and seller would be divided equally between the Brunsons and Maloof, Prince and Divine. The Brunsons dismissed their suits against all the defendants and refiled their claim against American Chain and Tull. These defendants filed a motion for summаry judgment which was denied. The trial judge granted appellants’ motion for a certificate of immediate review, and this court granted their application for interlocutory appeal.
The use of a “loan receipt” executed by a plaintiff in favor of defendant joint tortfeasors in exchange for an agreement not to sue said joint tortfeasors on a personal injury claim presents a question of first impression in the appellate courts of Georgia.
Appellants contend that the agreements entered into by appellees and defendants Maloof, Divine and Prince operated as a release, thereby releasing appellants as joint tortfeasors. Appellee contends that the agreеments are covenants not to sue and do not bar an action against other joint tortfeasors. While neither party has directly addressed the issues involved in the use of a “loan receipt”, in *834 the context of this case, we have not found that such аgreements between plaintiffs and joint tortfeasor defendants have been approved by the Georgia courts. Therefore, a full discussion is necessary, as we cannot, by ignoring such issues, give tacit approval of the use of such a device under the circumstances of this case.
Historically, the loan receipt arose out of a commercial setting involving shippers and carriers. The purpose of the loan receipt agreement was to supply the shipper promptly with money from his insurer to the extent of compensation to which the insured was entitled as a result of property loss suffered, and to preserve to the insurer the claim against the carrier to which the insurer would become subrogated upon payment by them for the loss. The Supreme Court of the United States approved such an agreement as a means of obtaining “prompt settlement for loss (which is essential to actual indemnity and demanded in the interest of commerce).” Luckenbach v. MсCahan Sugar Ref. Co.,
In Georgia, the usual circumstances under which a loan receipt is executed involve a loan to an insured by his insurer for property damages resulting from a tortious act by a third party.
McCann v. Dixie Lake &c. Co.,
One must remember in such cases that a contractual relationship exists between the insurer and the insured which would pre-date any tоrt committed against the insured. In addition, the cases involve property damage as opposed to personal injury claims. As cited above, our courts have upheld the loan receipt in the context of an insured and his own insurer, and have held that such a loan receipt does not constitute an assignment of the insured’s cause of
*835
action,
McCann v. Dixie Lake &c. Co.,
supra;
Southeast Transport v. Hogan Livestock,
The loan receipt agreement between an insured and insurer creates a legal fiction where, for the convenience of the insured, the insurer advances money which, if the insured were not successful in his claim against the tortfeasor, the insurer would be liable to pay under the insurance policy. Our courts have approved this legal fidtion and permitted the insured to prosecute his claim in his own nаme, to the advantage of both the insured and insurer. (See citations above.) However, this court has recognized that “the action would proceed in the name of the plaintiff, but would be in effect for the use of its insured.”
Executive Dev. Prop. v. Andrews Plumbing Co.,
The instant case presents an entirely different situation. Here, the parties to the agreement have no prior contractual relationship. The loan receipt is a device whereby some of the defendant joint tortfeasors agree to advance money to the plaintiff in exchange for a covenant not to sue, and at the same time such defendants retain an interest in the plaintiffs cause of action against the remaining defendant joint tortfeasors. Under these circumstances we must determine whether recognition of the legal fiction should permit the loan receipt to be validated.
In Georgia, assignment of a personal injury claim is not permitted. Code Ann. § 85-1805;
James v. Emmco Ins. Co.,
Under the usual circumstances involving a loan receipt, commercial necessity permits the. insurance company tо promptly pay an insured’s claim and at the same time, protect its interest in the subrogated claim. The cases cited, supra, involve claims for property damage. Code Ann. § 85-1805 provides that a “right of action is assignable if it involves, directly or indirectly, a right of property...” In the instant case, we find no compelling reason to permit contravention of the statutory prohibition against assignment of a personal injury claim. The situation is not analogous to the subrogation involved when payment is madе by an insurer to its insured.
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It is not the
name
one gives to a transaction, but the substance, which is material and which must be inspected and analyzed to determine its validity. Regardless of what the transaction is called, it cannot be upheld if it is prohibited by statute.
Flood v. Empire Invest Co.,
Dollar v. Long Mfg., 561 F2d 613,619 (5th Cir. 1977) is a federal case arising in Geоrgia which presents a situation similar to the case at bar. In Dollar, the plaintiffs argued that the trial court erred in submitting to the jury, as evidence of a release, an agreement entered into between the plaintiff and a dealer and manufacturеr and their insurance carrier. The agreement included an interest-free loan to the plaintiff to be repaid only from the proceeds of the plaintiffs litigation against Long, in exchange for a forbearance to sue the parties to the agreement. Judge Hill found that the agreement constituted a covenant not to sue and not a release. He also found, however, that the trial court erred in admitting the documents (including a check for the amount of the loan) into evidence for the jury’s consideration in interpreting the contract. While we agree with Judge Hill’s reasoning that the interpretation of a contract is for the court and not the jury, and we agree that the agreements in question should have been regarded as covenants not to sue, we do not. agree that the loan receipts should have been excluded as evidence. We do not agree with Judge Hill’s tacit recognition of such a device as a means of settlement.
Our sister states have dealt with loan receipts as settlement agreements between plaintiffs and defendant tortfeasors in a variety of ways. In Reese v. Chicago, Burlington & Quincy R. Co.,
Other cases involving loan receipt arrangements in situations similar to the instant case include: Crocker v. New England Power Co.,
We adopt the holding of those of our sister states which provides that a loan receipt agreement between a plaintiff and a joint tortfeasоr in exchange for a forbearance to sue is an absolute payment and not a loan. As such, we hold that the agreement in the case sub judice constitutes a covenant not to sue and not a release. “While Code Ann. § 20-909 provides that a сovenant never to sue is equivalent to a release, this statute applies to the parties with whom the covenant is made and not to another tortfeasor. A covenant not to sue one tortfeasor will not bar actions against another tortfeasor. (Cits.)”
Ford Motor Co. v. Lee,
Judgment affirmed.