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.
1. Several obligees
Plurality of obligees occurs in different situations.
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.
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.
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.
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).
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”.
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.
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)).
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.
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.
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.
Full performance of an obligation in favour of one of the joint and several obligees discharges the obligor towards the other obligees.
1. Each obligee can claim full performance
The main effect of joint and several claims has already been stated in the definition of Article 11.2.1(2). When claims are joint and several each obligee is entitled to claim full performance from the obligor.
1. Co-owners A and B sell their hotel to buyer X for a price of EUR 5,000,000. Their shares of co-ownership are equal. The sales contract provides that the sellers’ claims concerning payment of the price are joint and several. A may claim EUR 5,000,000 from X, subject to further allocation under Article 11.2.4.
2. Obligor’s choice
This Article states two other major effects of joint and several claims.
First, if the obligor takes the initiative to spontaneously perform its obligation, it is entitled to render performance in favour of any of its obligees.
2. The facts are the same as in Illustration 1. X takes the initiative of paying the price before being invited to do so by either of its obligees. X may validly pay to A or to B.
3. Obligor’s discharge
Another main effect of joint and several claims is that the obligor who has rendered full performance in favour of one of the obligees is discharged towards the other obligees.
3. The facts are the same as in Illustration 1. X has paid the whole price of EUR 5,000,000 to A. B, having difficulties to recover its share from A, requests payment of EUR 2,500,000 from X. Under Article 11.2.2(2), the claim will be rejected since full payment to A has discharged X towards the other obligee.
4. Practical aspects
The right given to each of the joint or several obligees to claim full performance may call for some coordination to avoid duplication of initiatives and unnecessary costs. Either the obligees have agreed in advance on which of them will claim performance, or at least the obligee envisaging to take the initiative should consult with its co-obligees.
On the other hand, when the obligor takes the initiative its choice of obligee to which it will perform may be affected by the fact that another obligee is already requesting performance. Some prior consulting may then be appropriate. Furthermore, an obligee who has received payment should immediately inform the others that performance has been rendered.
These solutions could usefully be agreed in advance by all parties involved. Otherwise the requirements of good faith and fair dealing are always applicable (Article 1.7).
(1) The obligor may assert against any of the joint and several obligees all the defences and rights of set-off that are personal to its relationship to that obligee or that it can assert against all the co-obligees, but may not assert defences and rights of set-off that are personal to its relationship to one or several of the other co-obligees.
(2) The provisions of Articles 11.1.5, 11.1.6, 11.1.7 and 11.1.8 apply, with appropriate adaptations, to joint and several claims.
1. Availability of defences
The defences which may entitle the obligor to refuse to perform do not necessarily exist against all obligees. Some of the defences may be personal to the obligor’s relationship with one obligee only. These defences can be asserted only against the obligee concerned.
1. Grain producer X has agreed to supply a certain quantity of wheat seeds to companies A, B and C which are engaged in a common agricultural project in a developing country. The contract provides that A, B and C are joint and several obligees as concerns the deliveries. X discovers that the premises where it has to deliver the seeds are not equipped with appropriate facilities for convenient unloading, the availability of which only A has guaranteed. X may invoke this as a defence against A requiring delivery, but not against B and C which had not guaranteed that the premises for the delivery would be equipped with appropriate facilities.
The obligor may also assert defences that it has in common against all obligees.
2. The facts are the same as in Illustration 1. X finds out that the agricultural project involves child labour by A, B and C in violation of applicable mandatory rules. This is a common defence that X may assert against any one of the obligees claiming delivery of the wheat seeds.
2. Effects of certain defences
Section 1 of this Chapter contains particular rules about the effects of certain types of defence (see Articles 11.1.5, 11.1.6, 11.1.7 and 11.1.8) available to joint and several obligors. Paragraph (3) of this Article provides that these rules apply, with appropriate adaptations, to joint and several claims.
a. Performance and set-off (reference to Article 11.1.5)
Article 11.1.5 provides that “Performance or set-off by a joint and several obligor or set-off by the obligee against one joint and several obligor discharges the other obligors in relation to the obligee to the extent of the performance or set-off”. Similarly, performance received by (or set-off exercised by) one of the joint and several obligees discharges the obligor towards the other obligees to the extent of the performance of set-off.
3. Companies A, B and C have jointly and severally loaned EUR 300,000 to X. A receives full payment. If B or C still claims reimbursement, X may assert that it has fully performed to A.
4. The facts are the same as in Illustration 3, except that X can claim EUR 300,000 from A for the sale of office equipment. X exercises the right of set-off under Article 8.3. Its obligation under the loan agreement is extinguished not only vis-à-vis A but also vis-à-vis B and C.
b. Release and settlement (reference to Article 11.1.6)
Article 11.1.6 provides that “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”. Similarly, release granted to the obligor by one of the obligees (or settlement with the obligor by one of the obligees) discharges the obligor towards the other obligees to the extent of the release or settlement.
5. Pamela, a famous race horse, has been sold by its co-owners A and B to buyer X. Concerning payment of the price, the contract provides that A and B are joint and several obligees. If A releases X from A’s share of X’s obligation, B’s claim against X is reduced by the amount of A’s share. A has no contributory recourse against B under Article 11.2.4 (see Article 11.1.6(2)).
6. The facts are the same as in Illustration 3, but A, whose share in the loan is EUR 100,000, settles with X, accepting a payment of EUR 60,000, i.e. an amount below its share. The joint and several claims of B and C against X are reduced by the full amount of A’s share, i.e. by EUR 100,000, and both remain X’s joint and several obligees for EUR 200,000. Settling obligee A has no recourse under Article 11.2.4 against B or C (see Article 11.1.6(2)).
As in Article 11.1.6, with appropriate adaptations, the reference to settlement concerns the special case where a separate settlement intervenes between the obligor and one of the joint and several obligees for the latter’s share. In this case the issue to be solved is that of the consequences of such a settlement for the other obligees’ claims.
In the more frequent situation where the settlement concerns all the joint and several claims, the consequences for the different obligees’ claims are determined by the terms of the settlement agreed by all parties and the contributory claims are adjusted accordingly.
c. Expiration of limitation periods (reference to Article 11.1.7)
Article 11.1.7 provides that the expiration of the limitation period of the obligee’s rights against one joint and several obligor affects neither (a) the obligations to the obligee of the other joint and several obligors, nor (b) the rights of recourse between the joint and several obligors under Article 11.1.10. Similarly, the expiration of the limitation period of one of the obligees’ rights against the obligor affects neither (a) the obligor’s obligations towards the other joint and several obligees, nor (b) the rights of recourse between the joint and several obligees under Article 11.2.4.
7. Obligor X has three joint and several obligees, A, B and C. A’s claim against X is time-barred. This does not affect B and C’s claims against X. If B or C receives performance from X, A can claim its share from the co-obligee having received payment.
Article 11.1.7 also provides that if the obligee initiates proceedings under Articles 10.5, 10.6 or 10.7 against one joint and several obligor, the running of the limitation period is suspended also against the other joint and several obligors. Similarly, if one of the obligees initiates proceedings against the obligor, the running of the limitation period is also suspended in favour of the other joint and several obligees.
d. Effect of judgment (reference to Article 11.1.8)
Article 11.1.8 provides that a decision by a court as to the liability to the obligee of one joint and several obligor affect neither (a) the obligations to the obligee of the other joint and several obligors, nor (b) the rights of recourse between the joint and several obligors under Article 11.1.10. Similarly, a decision by a court as to the obligor’s liability towards one of the joint and several obligees affects neither (a) the obligor’s obligations towards the other joint and several obligees, nor (b) the rights of recourse between the joint and several obligees under Article 11.2.4.
8. Obligor X has three joint and several obligees, A, B and C. A, acting alone, sues X for performance. The judgement grants A only part of its claim. Such judgment does not affect the obligations of X towards B or C, nor the recourses between the co-obligees under Article 11.2.4.
However, Article 11.1.8(2) also provides that the other joint and several obligors may rely on such a decision, except if it were based on grounds personal to the obligor concerned. In this case, the rights of recourse between the joint and several obligors under Article 11.1.10 are affected accordingly. Similarly, the other joint and several obligees may rely on the decision if they find it in their interest, except if it was based on grounds personal to the obligee concerned.
9. The facts are the same as in Illustration 8. This time, however, the judgment gives full satisfaction to A, including the awarding of additional damages. The other obligees may avail themselves of this favourable decision.
(1) As among themselves, joint and several obligees are entitled to equal shares, unless the circumstances indicate otherwise.
(2) An obligee who has received more than its share must transfer the excess to the other obligees to the extent of their respective shares.
1. Presumption of equal shares
Joint and several obligees may each claim full performance of the whole obligation under Article 11.2.2. However, as among themselves, they are only entitled to their respective shares. These shares are presumed to be equal.
1. Co-owners A and B have sold their factory for SFR 10,000,000, and they are joint and several obligees for the payment of the price. However, once the buyer has paid SFR 10,000,000, each co-owner will be entitled to receive its share in the final allocation. In principle, the shares are considered to be equal. Each co-owner should receive SFR 5,000,000.
However, the circumstances may indicate otherwise.
2. The facts are the same as in Illustration 1, except that the shares of co-ownership of the factory were not equal, but 75% for A and 25% for B. This will indicate that A should receive SFR 7,500,000 and B SFR 2,500,000.
2. Transfer of excess received
It will usually happen that the co-obligee claiming payment receives more than its share, as it is entitled to claim full performance under Article 11.2.2. When an obligee has received more than its share, it must transfer the excess to the other obligees to the extent of their respective shares.
3. The facts are the same as in Illustration 1. A has been paid the full price of the factory, i.e. SFR 10,000,000, and its share of co-ownership was 50%. A must transfer SFR 5,000,000 to B.
Whether the claim of the other obligees to the sums in excess is a property right or merely a personal claim against the obligee who received more than its share is outside the scope of the Principles.