| ||1. Default rule
In commercial practice the normal case is that several obligors that have undertaken the same obligation are jointly and severally bound towards the obligee. This justifies the default rule expressed in Article 11.1.2.
1. Companies A, B and C have together obtained a loan from bank X (as in Illustration 1 under Article 11.1.1). The loan contract fails to indicate how each of the parties is bound. They are presumed to be joint and several obligors, i.e. towards the bank each of them is bound for the whole amount of the loan.
2. Circumstances indicating otherwise
The presumption of joint and several obligations is rebutted when the circumstances indicate otherwise. This will often be the result of an explicit contractual provision to the contrary.
2. Insurers A, B and C have agreed to co-insure an industrial plant (as in Illustration 3 under Article 11.1.1). The scheme provides that each co-insurer is only bound for a percentage of the risk.
Other circumstances can also discard the presumption that plural obligors are jointly and severally bound.
3. The facts are the same as in Illustration 2, but insurers A, B and C have omitted to stipulate that they are not jointly and severally bound. However, the very purpose of co-insurance is to cover large risks without putting any insurer beyond the limits of its own capacity. This may be considered as a circumstance indicating that A, B and C are only bound for their respective shares.
3. Suretyship and joint and several obligations
A different situation is that of suretyship, an accessory agreement by which a person binds itself for another already bound, in case the main obligor defaults. The surety is not bound as a principal, but will only have to perform if the main obligor fails to do so. Principal and surety are bound separately – and in a successive order.
4. Company A wants to borrow EUR 1,000,000 from bank X. The loan is granted on the condition that parent company B will act as surety for reimbursement of the loan. A is X’s main obligor. B will be required to pay only if and when A defaults.
It may happen that the technique of joint and several obligations is used as a mechanism by which the economic benefit of suretyship may be obtained. The obligee requests the company willing to guarantee the initial obligor’s obligation to intervene next to the latter as a joint and several obligor, instead of entering into a separate agreement of suretyship. The obligee’s advantage is that in such a case, it can require payment directly from the intervening company. This does not necessarily deprive the intervening company of the special rights provided to a surety under the law of suretyship.
5. The facts are the same as in Illustration 4, but X requires B to bind itself as a joint and several obligor, next to A, for reimbursement of the loan. X may then require reimbursement directly from B as well as from A.
This particular use of the technique of joint and several obligations has some specific consequences: see Comment 3 on Article 11.1.9, concerning apportionment among joint and several obligors. The law of suretyship may, of course, provide additional consequences.