(1) Release of one joint and several obligor, or settlement with one joint and several obligor, discharges all the other obligors for the share of the released or settling obligor, unless the circumstances indicate otherwise.
(2) When the other obligors are discharged for the share of the released obligor, they no longer have a contributory claim against the released obligor under Article 11.1.10.
1. Release of one joint and several obligor
If the obligee releases one of its joint and several obligors with no further qualifications, Article 11.1.6 provides as the default rule that the release affects only the share of the released obligor, as determined by Article 11.1.9. As a consequence, the other obligors are discharged for the share of the released obligor only, and remain bound for the difference.
1. Bank X lends EUR 300,000 to companies A, B and C. The obligors are jointly and severally bound; their respective contributory shares are equal, i.e. EUR 100,000 each. X releases A, with no further qualification. The consequence for B and C is that they are released for the amount of A’s share of EUR 100,000. B and C remain jointly and severally bound towards X for an amount of EUR 200,000.
2. Settlement with one joint and several obligor
Sometimes the obligee receives payment from one of the co-obligors of an amount less than that obligor’s share as determined by Article 1.9, as part of a separate settlement with that obligor, pursuant to which the payment received is accepted as discharging all of the settling obligor’s share. Consequently, the other obligors’ joint and several obligations are reduced not only by the amount paid, but by the full initial amount of the settling obligor’s share.
2. Investors A, B and C are jointly and severally bound to pay seller X USD 3,000,000 for an acquisition of shares. A and X come to a settlement of different disputes between themselves. One of the terms of the settlement is that A will be discharged of its obligations towards X under the share purchase agreement by paying an amount of USD 600,000, i.e. USD 400,000 less than A’s contributory share towards the other co-obligors. Under these circumstances, X may not claim the whole remaining USD 2,400,000 against B and C. Their joint and several obligations are reduced by the full initial amount of A’s share, i.e. USD 1,000,000. They are still jointly and severally bound for USD 2,000,000 only.
3. Circumstances indicating otherwise
There can be circumstances where the other obligors are discharged for another amount other than that of the released or settling obligor’s share.
For instance, the obligee may release one of its obligors only for part of the latter’s share, as determined by Article 11.1.9. The other obligors will be discharged only for the amount of that released part. All obligors will remain jointly and severally bound for the reduced total amount.
3. The facts are the same as in Illustration 1, except that X releases A for an amount of EUR 60,000. The consequence for B and C is that they are released for the same amount of EUR 60,000. A, B and C remain jointly and severally bound towards X for an amount of EUR 240,000.
On the other hand, the obligee may also intend to fully release all of its obligors. If the obligee expresses its intention so to do, Article 11.1.6 does not apply.
As to settlement, it will frequently not be separate, but concern all joint and several obligors. The consequences for the different obligors’ obligations will in these cases be determined by the terms of the settlement agreed by all parties, and the contributory claims will be adjusted accordingly.
4. No more contributory claim
If the obligee has released one of the co-obligors, or settled with it, and the other co-obligors have been discharged of the released obligor’s share, the other co-obligors have no more contributory claim against the released obligor.
4. The facts are the same as in Illustration 1: A is released by X, while B and C remain jointly and severally bound for an amount of EUR 200,000. If B pays X EUR 200,000, B has a contributory claim of EUR 100,000 against C, but no claim against A.
5. The facts are the same as in Illustration 2: B and C continue to be jointly and severally bound for an amount of USD 2,000,000. If B pays USD 2,000,000 to X, B has a contributory claim of USD 1,000,000 against C; but B has no claim against A, even though A has paid X only USD 600,000 as agreed in their separate settlement.