When several obligees can claim performance of the same obligation from an obligor: 

 

(a) the claims are separate when each obligee can only claim its share; 

 

(b) the claims are joint and several when each obligee can claim the whole performance; 

 

(c) the claims are joint when all obligees have to claim performance together.

 

COMMENT

 

1. Several obligees

 

Plurality of obligees occurs in different situations.

 

Illustration

 

1. Banks A, B and C join in a syndicated loan agreement to lend company X USD 12,000,000. The three banks are plural obligees with regard to claiming reimbursement from X.

 

Other instances of plurality of obligees occur, among others, with co-insurers, multiple buyers and/or sellers in share acquisition agreements and partners in consortium agreements in various sectors, such as the construction sector or the petroleum industry.

 

2. The same obligation

 

This Section applies when the different obligees can claim performance of the same obligation from the obligor. This is the case in Illustration 1 (reimbursement of the syndicated loan). Situations where different obligees of the same obligor have rights deriving from different obligations do not fall under the scope of this Section.

 

Illustration

 

2. Architect A and contractor B are both involved in the construction of a new industrial plant. Their respective claims against the client concern different obligations (payment of their respective types of services). The claims are not subject to the Articles in this Section, but to the respectively applicable law.

 

On the other hand, when different actors in a construction project join in a consortium and claim one payment for all their services, they are to be considered as plural obligees for that payment. 

 

The “same obligation” usually derives from a single contract. In Illustration 1, the syndicated loan agreement is a single contract. It could however also happen, in the same situation, that each lender would choose to have its own contract with the borrower. Co-insurers joining to cover the same risk usually have distinct contractual relationships with the insured.

 

Illustration

 

3. Eight insurance companies agree to co-insure the liability risks of a pharmaceutical group. The co-insurance agreement provides that each co-insurer has a distinct contractual relationship with the insured, but the insured’s obligations towards the co-insurers are the same (payment of the agreed premium, required prevention measures, loss notification, etc.). These co-insurers are plural obligees, subject as such to the Articles in this Section.

 

3. Three main types

 

Article 11.2.1 defines three main types of claims available in practice when several obligees can claim performance of the same obligation from an obligor. 

 

The claims can be separate. Each obligee can then claim only its share.

 

Illustration

 

4. The facts are the same as in Illustration 1. If the claims of banks A, B and C against X totalling USD 12,000,000 are separate and if their shares are equal, each bank may only claim reimbursement of USD 4,000,000 from X.

 

The claims can be joint and several, which means that each obligee can claim full performance (see Article 11.2.2), subject to subsequent allocation between the different obligees (see Article 11.2.4).

 

Illustration

 

5. Companies A and B are co-owners of a storage house, which they rent to transport company X. The contract provides that the co-owners’ claims for the rent are joint and several. A and B may each claim payment of the full amount of the rent from X.

 

The claims are “joint” when all obligees have to claim together; consequently, the obligor may only perform in favour of all of them together. This situation is sometimes also referred to as “communal claims”.

 

Illustration

 

6. Companies A and B rent an office together, to share in a foreign capital. Due to the nature of their claim on occupation of the office, A and B are joint obligees. This would not prevent them from designating one of them as agent for dealings with the owner of the premises.

 

4. No presumption provided

 

In the case of plurality of obligors, Article 11.1.2 sets a presumption of joint and several obligations, because this corresponds to the most frequent commercial practice. 

 

On the contrary, when it comes to determining to which of the three types defined in this Article claims by plural obligees belong, the Principles do not provide any presumption. The reason is that none of these types seems to be dominant in practice; choices vary considerably, mainly depending on the operation concerned. 

 

Consequently, in situations where plural obligees are involved, parties are encouraged to choose the relevant type by an express stipulation.

 

Illustrations

 

7. Banks A, B and C join in a syndicated loan agreement to offer financing to company X. The agreement provides that “All amounts due, and obligations owed, to each Bank are separate and independent obligations. Each Bank may separately enforce its rights under this agreement”. This express provision makes the banks’ claims separate.

 

8. Art collectors A and B, co-owners of a painting by Rothko, sell it to a Museum for the price of USD 20,000,000. The contract stipulates that each seller can claim payment of the whole price. The claims are joint and several.

 

9. The facts are the same as in Illustration 8, except that the sales contract with the Museum provides that A and B’s claims are separate. This means that each of them can only claim payment of the price for its own share of the claim, normally corresponding to its previous share of ownership.

 

Before making such a contractual choice, parties should pay attention to the advantages and disadvantages of each of the different types of plural claim. 

 

In particular, joint and several claims have the advantage of avoiding the multiplication of law suits. This is an especially important concern in international trade. Any of the obligees may claim the whole performance. Joint and several claims also simplify the situation of the obligor, who will not have to divide performance between its different obligees. From the point of view of the plural obligees themselves, claims are normally easier if they are joint and several. 

 

On the other hand, plural obligees have to be aware that if their claims are joint and several they lose exclusive control of their respective shares. Any other joint and several obligee may claim and collect the whole performance, with the risk that later allocation under Article 11.2.5 could create difficulties. This explains why separate claims seem to be more prevalent in certain sectors (see for instance Illustration 1). 

 

If the parties have failed to make an explicit contractual choice, the type to which a plural claim should be assigned will be determined by interpretation of the contract in accordance with the provisions in Chapter 4. In many instances circumstances such as the nature or the purpose of the contract will be especially relevant (see Article 4.3 (d)).

 

Illustrations

 

10. Company A, located in country X, and company B, located in country Y, join in ordering a large quantity of cars from a manufacturer. The cars for country X are right-hand drive, those for country Y left-hand drive. When delivery is to be claimed, these circumstances indicate that A and B are separate obligees, each one being entitled to claim its type of car.

 

11. Tax consultant X has undertaken to give tax advice to companies A and B concerning the operations of a joint venture in which the latter are involved. Since the tax advice concerns the common venture of A and B and this advice is hardly divisible, A and B are to be considered as joint and several obligees when claiming performance from X.

 

5. Possible designation of an agent

 

In practice, plural obligees often designate an agent with the authority to deal with the obligor on behalf of all of them, within agreed limits. This seems to be especially frequent, for practical reasons, when the claims are separate. However, in that case, each obligee intends to keep full control of its own rights, often reserving the possibility to revoke the agent’s authority at any time.

 

Illustration

 

12. Banks A, B and C have joined in a syndicated loan agreement to lend USD 12,000,000 to company X. The claims are separate, USD 4,000,000 for each bank. However, A has been designated as agent of the consortium with authority to collect reimbursement of the full amount.

 

The initiative of designating an intermediary may come from an obligor who wants to exert some control over claims which could be separately brought by its numerous obligees.

 

Illustration

 

13. Under the terms of issue of a bearer bond trustees are appointed to represent the interests of bondholders. The issuer covenants to make payments to each bondholder in accordance with the terms of issue and gives the trustee a parallel payment covenant. Upon the issuer’s default the trustee may at its discretion enforce payment and must do so if so required by a given percentage in value of bondholders. Individual bondholders are precluded from taking action on default by the issuer unless the trustee for the bondholders has failed to fulfil its obligation under the trust deed to take enforcement action. Each bondholder is a separate obligee. The purpose of the trust is simply to monitor performance by the issuer and co-ordinate enforcement in order to avoid precipitate action by an individual bondholder.

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