A joint and several obligor against whom a claim is made by the co-obligor who has performed the obligation:
(a) may raise any common defences and rights of set-off that were available to be asserted by the co-obligor against the obligee;
(b) may assert defences which are personal to itself;
(c) may not assert defences and rights of set-off which are personal to one or several of the other co-obligors.
This provision deals with the defences and rights of set-off that may be asserted between co-obligors when contributory claims are exercised.
1. Common defences and rights of set-off
Pursuant to Article 11.1.4, the co-obligor that is asked to perform by the obligee may assert all defences and rights of set-off common to all the co-obligors. If that co-obligor has failed to raise such a defence or right of set-off which would have extinguished or reduced the obligation, any other joint and several obligor against which the former obligor exercises a contributory claim may assert that defence or right of set-off.
1. Joint and several obligors A and B have purchased a know-how licence together. Licensor X has undertaken that the technology was fit for both licencees. If this appeared not to be the case, each obligor could invoke this common defence against X. If A fails to do so when required to pay the fees by X, B may refuse to pay its contributory share to A.
2. Personal defences
A co-obligor may also assert a defence personal to itself against a contributory claim.
2. Companies A, B and C are jointly and severally bound to pay the price of products to be purchased from seller X. A, however, was induced to enter the contract by fraud within the meaning of Article 3.8. B pays the full price to X. A may assert the fraud it had been subjected to as a personal defence against B’s contributory claim.
Under Article 11.1.12, rights of set-off are not subject to the same rule as defences, as they usually are in the Principles. The reason for this is that the rights of set-off cannot be treated in the same manner as defences when it comes to the asserting of a personal right of set-off against the obligee to counter a contributory claim. In actual fact, under Article 11.1.5, performance by the other co-obligor has discharged the first obligor from its obligations towards the obligee, with the consequence that the right of set-off does not exist any more. The first obligor will have to pay its contributory share to the other obligor, while remaining in a position to exercise its distinct claim against the obligee.
3. Bank X has lent EUR 3,000,000 to joint and several obligors A and B. As a result of the selling of shares belonging to A on the stock market, X then becomes A’s obligor for an amount of EUR 500,000, thus giving A a right of set-off for that amount. X claims reimbursement of EUR 3,000,000 from B, which pays the full amount. If B then claims contribution from A, the latter may not assert its own right of set-off against B. Such a right does not exist any more since payment to X by B has also discharged A towards X. A will have to pay its contributory share to B and will be able to exercise its own claim of EUR 500,000 against X.
3. Defences and rights of set-off personal to other co-obligors
A co-obligor may not assert a defence or right of set-off which is personal to one or several of the other co-obligors.
4. The facts are the same as in Illustration 2. If B claims contribution against C, the latter may not invoke the fraud to which A was subject, since this defence is personal to A.
5. The facts are the same as in Illustration 3. If B claims contribution from C, the latter may not assert A’s right of set-off, since this right is personal to another obligor.