"Jointly and Severally:" What Does it Mean Exactly?

By Paisley Simonnet, Nadine Nassef, Sabridass Ponnou, Charlotte Robin, University of Montpellier, Centre du Droit de l'Entreprise, Program of Master 2 "Droit du Commerce International"

Overview

These difficulties can be limited by a definition of the legal environment of a "joint and several" clause (I) and some drafting advice (II).

I - Defining the legal environment of a "joint and several" clause

1.1 - "Jointly" bound

2 - National considerations

2.1 - French particularities since the Ordinance of February 10th, 2016

According to article 1309 of the French Civil Code, the regime of joint and several liability is an exception. In addition, article 1310 of the same Code provides that "joint and several liability results from the law or a convention; it cannot be presumed.

However, in commercial law, pursuant to a customary rule and regardless of the fact that co-debtors are merchants or not, joint and several liability between them is presumed.

With the new legislative context, is the custom of joint and several liability in commercial contracts maintained?

a - Arguments in favor of the extinction of joint and several liability in commercial matters

Article 1310 of the French Civil Code provides that joint and several liability emerges either from the law or a convention, and cannot be presumed. As a consequence, the custom of joint and several liability in commercial law is contra legem. So, one could argue that the custom should not be applied in presence of a contrary provision in the Civil Code.

In the absence of a "legal provision or of contractual stipulation," the French Cour de Cassation denied that the consent of joint and several liability by two shareholders could lead to the joint and several liability of all the shareholders.

b - Arguments in favor of upholding the custom of joint and several liability in commercial matters

One could argue that the French Civil Code should not apply to commercial matters concerning liability between co-debtors. However, the French Commercial Code remains silent on this topic.

 

Before the Ordinance of 2016, the French Cour de Cassation had already disregarded the former article 1202 of the French Civil Code in commercial contracts, which also stated that joint and several liability could not be presumed. Joint and several liability between co-debtors in commercial contracts was maintained despite the former article 1202 of the same Code.

Consequently, the reform of French contract law should not put an end to such custom.

2.1.2 - Second issue: Contribution to the debt among co-debtors

a - Article 1317 of the French Civil Code: General rule

Once the creditor is paid by one of the co-debtors, can the latter demand execution from the remaining co-debtors? It depends on the importance of the debt incurred by each of them. The one who paid more than his or her share can claim reimbursement from the others, for their own share of the debt. Under article 1309 of the French Civil Code, the obligation is to be divided equally among co-debtors.

 

b - Article 1319 of the French Civil Code : Limitation

One limitation to article 1317 can be underscored. Article 1319 of the French Civil Code provides that in the event that a breach of an obligation is attributable to only one co-debtor, the responsibility relies on him or her.

The general definition of joint and several liability has been recently examined in the Marlbray Ltd v Laditi case. In this case, it was ruled that when one of the co-debtors proves that he did not authorize his co-debtor to act on his behalf and that he was not aware of the existence of a binding contract, then the contract was only binding between the creditor and the co-debtor who actually signed, even though the terms of the contract provided for joint and several liability.

2.3 - Spanish law

II - Drafting a "joint and several" clause

1 - Issues to be addressed in a "joint and several liability" clause

1.1 - Explicit reference to the existence of "joint and several liability.

In the absence of an express joint and several liability provision, courts have held that joint and several liability could be deduced from the factual elements of the situation.

2 - Suggested drafting

A, the creditor, on the one hand;

and

B, C and D, the co-debtors, on the other hand;

1. Joint and several. B, C and D acknowledge that they are being jointly and severally liable for the whole obligation resulting from the contract as well as for the costs relating to it.

 

2. Obligation to the debt. A will be entitled to claim the entire payment of the debt from B and/or C and/or D.

B and/or C and/or D will be entitled to oppose an exception inherent to the debt. However, should the exception be purely personal, only the co-debtor concerned by this exception will be authorized to invoke it.

 

3. Contribution to the debt. Contribution to the debt will be divided between the co-debtors as follows:

B shall be held liable for 25 % of the obligation.

C shall be held liable for 35% of the obligation.

D shall be held liable for 40% of the obligation.

If B is relieved from the debt owed to A, B will be entitled to claim repayment from C and D. If B has executed more than his obligation, he will be entitled to claim from C and D, each one up to their contribution initially agreed upon. The same rule will apply to C and D in case they are relieved from the debt owed to A.

 

4. Duty to notify co-debtors. When A will claim the payment of the debt from either B, C, or D, he or she shall notify his claim to the other co-debtors from whom he does not claim direct payment."

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