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expectation the original debtor’s obligation is reduced to being subsidiary rather than that of the subsequent new debtor. Nevertheless, ITALIAN authors and courts try to distinguish between subsequent assumption of another person’s debt, on the one hand, and dependent personal security, on the other hand. They point out the differences in legal structure and in causa existing between the two institutions (see supra no. 4; Cass. 5 March 1973 no. 609, Giust.civ. 1973 I 937; Cass. 24 March 1979 no. 1715, Giur.it.- Mass. 1979, 456; Cass. 20 Feb. 1982 no. 1081, Foro it.Mass. 1982, 239). One relevant criterion is whether the contract of subsequent cumulative assumption of debt is gratuitous or not. If it is non-gratuitous, it should be qualified as an assumption of a debt together with the existing debtor and not as a dependent personal security (Di Sabato 497). If, on the contrary, the subsequent assumption of debt is gratuitous, the creation of a security is the only purpose of the operation and the new co-debtor has no relevant personal interest in the performance of the obligation; it will be qualified as a dependent personal security (Rescigno, Delegazione 953).

20.In PORTUGAL, although the subsequent assumption of debt conceptually differs from the contract of dependent personal security, it is recognised that in practice this distinction may become uncertain (Almeida Costa 764) because the co-debtor(s) may pretend to assume in substance a personal security (Vaz Serra, Note on acord¼o de 17. 10. 1975, at 294). According to case law, the distinction is a matter of interpretation of the contract, basically depending on the existence of a personal interest of the new debtor in the obligation: in this case, the agreement will be qualified as an assumption of debt; otherwise, and if only a personal interest to help the original debtor is to be detected in the agreement, the latter will be regarded as a personal security (STJ 6 May 2004 no. 2294/03; 12 Dec. 1995 no. 8131/93: www.dgsi.pt).

V. Co-Debtorship for Security Purposes: Prerequisites and Effects

A.Prerequisites

21.An important attraction of any co-debtorship and therefore also of one for security purposes is a negative one: the validity of such a co-debtorship does not depend upon any formal requirement (cf. the provisions mentioned supra no. 2) – as is usually established for a dependent personal security (cf. the court practice cited infra, national notes to Art. 4:105 no. 20). However, in AUSTRIA which has most strongly adapted the general rules on co-debtorship to purposes of security, this freedom from form requirements has generally beeen criticised since the risk for co-debtors for security purposes is at least as high, if not even higher than that for a provider of a dependent personal security (AUSTRIA: Bydlinski 27, 29, 30 with references); for the same reason, also some GERMAN authors plead for the written form (M4nchKomm/Mo¨schel, no. 13 preceding § 414; Harke, ZBB 2004, 147 ss.), but the majority is against it (Palandt/Heinrichs no. 3 preceding § 414 with references).

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B.Effects

a.Initial Co-Debtorship

22.In BELGIUM, FRANCE and LUXEMBOURG, the liability of a solidarily liable co-debtor deviates from the merely subsidiary liability of a dependent security provider. Thus even the co-debtor who has no personal interest in the performance of the contract remains liable towards the creditor as a co-debtor (Cass.civ. 21 July 1987, Bull.civ. 1987 I no. 249 p. 182; Cass.civ. 22 May 1991, Bull.civ. 1991 I no. 162 p. 107; Simler no. 27). Nor can personal defences of the other co-debtor be raised by the solidary co-debtor (BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 1208; cf. Simler no. 27), also contrary to the rules on dependent personal securities. Further, the solidary co-debtor is not discharged if the creditor by acts or omissions thwarts the co-debtor’s right of subrogation into his rights against another co-debtor (BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2037-since 2006: FRENCH CC art. 2314 – CA Versailles 20 Feb. 1991, JCP G 1992 I no. 3583 (9), note Simler). Only in the internal relationship between the codebtors the solidarily liable co-debtor, who has no personal interest in the performance of the contract, is expressly considered as a provider of dependent personal security (BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 1216; cf. Simler no. 27) and consequently has full recourse against the other co-debtor for all amounts paid to the creditor.

23.In AUSTRIA and GERMANY, the starting point virtually is the same as in the FRANCOPHONIC countries (preceding no. 22). However, in the two GERMANOPHONIC countries, courts and writers have in varying degrees adapted the general rules on codebtorship in order to serve more properly the special function of the co-debtorship for security purposes (AUSTRIA: short survey in Bydlinski 26-30; GERMANY: broad survey in Bu¨low, Kreditsicherheiten nos. 1579-1607). According to court practice, the co-debt- or for security purposes is solidarily liable with the other (full) co-debtor (contra in GERMANY: Bu¨low, Kreditsicherheiten no. 1598 for consumer co-debtors against prevailing opinion (cf. M4nchKomm/Habersack no. 15 preceding § 765)). This differs from the ordinary rule on the merely subsidiary liability of the provider of a dependent security (cf. national notes on Art. 2:106). Personal defences of the co-debtor which have not been raised by it, cannot be invoked by the co-debtor for security purposes (AUSTRIA: Bydlinski 28; GERMANY: Bu¨low, Kreditsicherheiten no. 1603), again contrary to the rules on dependent personal security (cf. national notes on Art. 2:103). According to another departure from these latter rules, the co-debtor for security purposes cannot object to the creditor that the latter had prevented or diminished rights on which the

co-debtor could have relied upon performance (GERMANY: Bu¨low, Kreditsicherheiten no. 1604), whereas in AUSTRIA the Supreme Court has admitted this exception (OGH 29 April 1992, BA 1993, 64; OGH 14 April 1996, BA 1996, 893). For the internal relationship between the (main) debtor and the debtor acting for security purposes, the general rules on recourse between co-debtors are applicable (GERMANY: Bu¨low, Kreditsicherheiten nos. 1605 s.: the co-debtor for security purposes can fully recover from the (main) debtor, while the latter is not entitled to any recovery).

24.According to the absolutely dominant view in GREECE, the “additional” obligation of the new debtor is joint and several with that of the initial debtor and has no accessory

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character: the obligation of the new co-debtor does not depend upon the obligation of the initial debtor, but evolves separately (Georgiades § 7 no. 57; Theodoropoulos 58; CA Athens 5557/1993, NoB 41, 1097). Hence, the new debtor, in contrast to the provider of personal security (cf. CC art. 851), is not liable for the principal debt at any given point in time. Also as far as reimbursement is concerned, in the case of a subsequent assumption of debt each of the co-debtors is entitled ex lege to claim reimbursement from the others, if it has satisfied the creditor (cf. GREEK CC art. 487), even if there is no underlying relationship between the co-debtors (Zepos A 313-314). The co-debtor shall be deprived of its right to reimbursement only if this can be deduced from a special underlying relationship (Tampakis 426; Kallimopoulos 1520). On the contrary, in a contract of security, the provider of personal security is entitled to reimbursement only if such right can be deduced from the underlying relationship (Georgiades § 7 no. 59). Hence, the plaintiff co-debtor does not have to prove the existence of the underlying relationship in order to exercise its right to reimbursement or recourse, whereas the defendant co-debtor bears the burden of proving the existence of a special underlying relationship denying any right of recourse and has to rebut the presumption of CC art. 487 (Tampakis 427; contra, Zepos A 315 fn. 3); on the contrary, the plaintiff provider of security must prove the existence of an underlying relationship, if it wants to claim reimbursement or recourse (cf. CC art. 858; Tampakis 427).

b.Subsequent Cumulative Assumption of Another Person’s Debt

25.In BELGIUM and FRANCE the prohibition to invoke any defence derived from the relationship between the original debtor and the creditor is one of the reasons for denying the de´le´gation the character of a dependent personal security (BELGIUM: Van Quickenborne nos. 876-877; FRANCE: Malaurie and Ayne`s, Les obligations no. 1295). In FRANCE many authors plead for an exception if in the absence of an agreed definite amount of the debt the new debtor is obliged to pay the debt of the initial debtor (Malaurie and Ayn7s/Ayne`s and Crocq, Les s ret s no. 324 relying on Cass.civ. 17 March 1992, JCP G 1992, II no. 21922; Marty, Raynaud and Jestaz II no. 435; Planiol and Ripert/Esmein no. 269).

26.In GREECE the principle of accessority is to some extent applied and is in cases of subsequent assumption of special importance since the co-debtor assumes the debt in the state and with all the principal debtor’s objections as at the time of assumption; the co-debtor may not, however, set off a claim of the principal debtor against the creditor (cf. GREEK CC art. 472 juncto 473 para 1 and 2, by an extension of the rules on the assumption of debt in order to discharge the original debtor). Also in GERMANY the subsequent assumption of an obligation is only valid if the primary obligation exists; however, its further fate is not necessarily bound up with that of the primary obligation. It is controversial whether the subsequently assumed obligation depends upon and is subsidiary to the primarily assumed obligation (against Staudinger/Horn no. 363 preceding §§ 765 ss.; forcefully pro: Schu¨rnbrand 118-126; against dependency, but for subsidiarity, generally Bu¨low, Kreditsicherheiten nos. 1598, 1602 s.).

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C.Classification

a.Dependent Personal Security

27.According to DANISH authors referring to the Promissory Note Act § 2 concerning plurality of debtors, “a person who assumes an obligation towards a creditor in order to secure the debtor’s obligation is not an additional debtor, but a provider of personal security” (Karnov/Møgelvang-Hansen 5558 fn. 8; likewise Ussing, Kaution 12 s.) Also in the NETHERLANDS, co-debtorship for security purposes and dependent personal security are closely associated with each other, although proceeding from the other side: According to the new CC art. 7:850 para 3, dependent personal security is subject to the rules on plurality of debtors, except insofar as the code does not establish special rules on dependent personal security!

b.Independent Personal Security

28.For several FRENCH authors, the subsequent cumulative assumption of debt constitutes an independent personal security, if the new debtor is obliged to pay a definite sum

(Malaurie and Ayn7s/Ayne`s and Crocq, Les s ret s no. 324 ; Larroumet/Franc¸ois no. 326). Furthermore, the prohibition to raise any exceptions from the underlying relationships confirms the independent character of this assumption of debt (Cabrillac and Mouly no.473-4; Malaurie and Ayn7s/Ayne`s and Crocq, Les s ret s no. 324; further references in Simler no. 897). However, protective judicial measures can be invoked by a co-debtor in the case of a subsequent cumulative assumption of debt in order to refuse performance, which is contrary to the first demand character of an independent personal security (Simler no. 898). Simler has carefully pointed out not only some similarities but also several dissimilarities of a subsequent co-debtorship as compared with an independent personal security (Simler nos. 897 s.).

c.Special Instrument of Security

29.Under GERMAN law the subsequent cumulative assumption of debt for purposes of security is a special instrument of security that is neither a dependent nor an independent personal security. Contrary to the characteristics of a dependent personal security, the co-debtor assumes vis- -vis the creditor a personal (primary and independent) obligation as of the time of the assumption (cf. Reinicke and Tiedtke, Kreditsicherung 1, 5, 14; it may therefore be called a “semi-accessory security”). The issuer of an independent personal security assumes the responsibility that the original debtor will perform (pay a certain amount of money), whether or not this amount is due. Some voices plead for recognising co-debtorship for security purposes as a special institution, combining characteristics of both (Schu¨rnbrand 194-198; Madaus 327-329, with proposals for specific legislative rules).

30.In FRANCE, a great authority as Simler no. 897 s. seems to tend in the same direction.

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VI. Additional Rules on Plurality of Debtors

31.Cf. infra national notes to Art. 1:107 as well as to Chapters 2 and 4.

(Dr. Fiorentini/Prof. Drobnig)

Article 1:107: Several Security Providers: Solidary Liability Towards Creditor

(1)To the extent that several providers of personal security have secured the same obligation or the same part of an obligation or have assumed their undertakings for the same security purpose, each security provider assumes within the limits of its undertaking to the creditor solidary liability together with the other security providers. This rule also applies if these security providers in assuming their securities have acted independently.

(2)Paragraph (1) applies with appropriate adaptations if proprietary security (Article 1:101 lit. (h)) has been provided by the debtor or a third person in addition to the personal security.

Comments

A.Context and Scope

1.Articles 1:107-1:109 form, as the partly identical titles indicate, a complex, but coherent set of rules dealing with the special problems that arise if there are several security providers. In this situation, the first issue is the kind of liability, that exists between the several security providers towards the creditor – see Article 1:107. The second issue arises after one (or several) creditors have made payments to the creditor: can the payor(s) have recourse against the other security providers and for how much? – see Article 1:108. The third issue is whether and for how much the security providers who have satisfied recourse claims by other security providers can have recourse against the debtor – see Article 1:109. All these provisions apply also to a co-debtorship for security purpose, cf. Article 1:106.

2.Article 1:107 deals with the liability of several security providers vis- -vis the creditor.

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B.Several Providers of Personal Security

3.Basic rule. If several persons assume a personal security in favour of a creditor, each of them might be separately liable towards the creditor or they may be liable solidarily (jointly and severally), each for the full amount of its undertaking, at the choice of the creditor. If A and B are separately liable for 40.000 each and the secured obligation amounts to 40.000, creditor C must demand 20.000 from both A and B (PECL Articles 10:101 (2) and 10:103). By contrast, if they are solidarily liable, C may demand the full amount of 40.000 from either A or B (PECL Articles 10:101 (1) and 10:102 (1)), whoever appears to be more solvent, and can leave the distribution between A and B to their agreement or to a recourse action (PECL Article 10:106 (1)).

4.These rules opt for solidary liability. This corresponds to the expectations of the parties: Each provider of personal security must assume that it will be held fully responsible; and this is also in the interest of the creditor. The principle of solidary liability of several personal security providers seems to be generally recognised. Of course, the parties may agree to deviate from this general rule.

5.There is less unanimity with respect to the question whether solidary liability exists, even if the several contracts of personal security have been assumed independently from each other, especially at various times. However, distinctions as to time or occasions neither make sense nor are they practicable. In reality, all personal security providers are in the same boat and should share the same risk (para (1) sent. 2).

6.“Secured the same obligation” or “the same security purpose”. This alternative is based upon the basic distinction in this Part between dependent and independent personal securities (supra Introduction no. 9 as well as Article 1:101 (a) and (b)). Obviously, the first part of the pair of words refers to dependent securities and the second part to independent securities.

7.“Within the limits of its undertaking”. This formula has both a quantitative and a qualitative meaning.

8.As far as quantity is concerned, a personal security provider may have secured parts only of the same obligation(s); in this case, para (1) only applies, if and insofar as the various part securities cover the same portion of the secured obligation(s). In the latter case, it is presumed that two part security providers are liable as solidary debtors (para (1) sent. 1).

Illustration 1 a

For a credit of 3 million, A assumes a security for 1,5 million and B for 0.5 million. Up to 0.5 million, A and B are liable solidarily.

Illustration 1 b

As in Illustration 1 a, but the debtor has paid 2 million on his debt. The creditor may then demand all of the remaining 1 million from A; or he may demand up to 0,5 million from B and the remaining amount from A; or he may divide his claim in

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any other proportion as between A and B, but only within the maxima which A and B, respectively, have agreed as their upper limit of liability.

Illustration 2

For a credit of 3 million, A assumes a security with a maximum amount of 3 million and B a security for any amount surpassing the first 2 million. A and B are solidary debtors for any amount that exceeds 2 million.

9. As far as the quality of the undertaking is concerned, the security provider may have assumed vis- -vis the creditor not a solidary liability with the debtor but a merely subsidiary liability (cf. Article 2:106); in particular, according to Article 4:106 (b) a security assumed by a consumer creates only a subsidiary liability. The merely subsidiary liability of one or more security providers does not affect the liability of any additional security providers.

C.Personal and Proprietary Security Provider(s)

10. Paragraph (2) deals with the relatively novel issue of a plurality of personal and proprietary security providers.

Illustration 3

C’s credit to D is secured by a proprietary security right encumbering the shares of D in company Z and also by a suretyship provided by D’s friend F.

Most writers start from the principle that the two groups of security providers should be treated equally. The creditor (and not the law) should be free to choose, according to the circumstances, against whom of the several security providers it prefers to turn first.

11. The minority view would establish primary liability of proprietary and only subsidiary liability of personal security providers. It is based upon the idea that personal security, since it charges all the assets of a person, is more risky and therefore deserves more protection by attaching only a subsidiary liability to it. However, this view is not convincing. In fact, the limits between the impact of the two types of security are fluid, depending upon the circumstances: On the one hand, proprietary security may cover virtually all the security provider’s assets while, on the other hand, a personal security for a low amount may in fact burden only a small portion of the security provider’s property.

National Notes

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I. Types of Liability in Case of Plurality of Providers of Personal Security

A. Overview

1. For the existence and shape of solidary liability in the different member states in general reference is made to the national notes on PECL Art. 10:101 no. 2.

2.The liability of several persons providing personal security for the same debt or part thereof may in all national systems take the different forms described in PECL Art. 10:101: it may be separate (pro rata, several) or solidary (in solidum, joint and several). Which of these types is applied under the national systems may depend upon several circumstances, which will be discussed in detail below.

3.The exact shape of the solidary liability of providers of security in the case of a plurality of providers of personal security under the national systems is highly diversified: whereas there may be full solidary liability in the meaning of PECL Chapter 10 covering both the external relationship as against the creditor and the internal relationship upon recourse between the providers of security, there may also be a mere external solidarity of the providers of security but separate liability in their internal relationship (for details of the latter, cf. infra national notes on Art. 1:108). Art. 1:107 deals only with the external relationship between the creditor on the one side and the providers of security on the other side.

B.Intention of the Parties – Solidary Liability within the Limits of Each Security Provider’s Undertaking

4.In general, the intention of the parties as found upon proper construction of the contract is the most important factor (ENGLAND: Andrews and Millett no. 4-011; GERMANY: Staudinger/Horn § 769 no. 7 with further references: agreement of the parties is possible). In the absence of a contractual stipulation, there are presumptions as to the type of liability applicable (see infra nos. 6 ss.).

5.It follows from the general emphasis on the agreement of the parties to the security transaction that the liability of each security provider is restricted to its undertaking and thus the solidarity of several providers of security is limited to that part of the obligation for which at least two of the security providers have assumed liability (AUSTRIA: CC § 1359 first sentence; Schwimann/Mader and Faber § 1359 no. 1; DENMARK: Pedersen,

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Kaution 102; ENGLAND: Ellesmere Brewery v. Cooper [1896] 1 QB 75 (CFI); FINLAND: LDepGuar § 31 para 1 juncto § 5; RP 189/1998 rd 70; GERMANY: Staudinger/Horn

§ 769 no. 13).

C.Differentiation between Co-Securities and Independently Assumed Securities

6.Some countries differentiate between the circumstances of contracting: simultaneously assumed personal securities (co-securities) are treated differently from personal securities that are assumed at different times. In most countries which make that differentiation, the liability of co-providers of security is solidary (ENGLAND/IRELAND: White v. Tyndall (1888) 13 App.Cas. 263 (HL(Irl))) for all cases of plurality of sureties. In ENGLAND, if the promise is made simultaneously by two or more providers of security, clear words of severance are necessary to render the security provider’s liability separate (cf. White v. Tyndall (1888) 13 App.Cas. 263 (HL(Irl)); The Argo Hellas [1984] 1 Lloyd’s Rep 296, 300 (CFI)). The situation is similar in IRELAND (Donnelly 420). By contrast, the liability of the providers of security will be separate if they have acted independently or successively without making reference to the other security provider’s promise (Andrews and Millett no. 4-011).

7.In ITALY solidary liability is the general rule for co-securities; it arises also when the several security providers, in assuming their obligations, did not act simultaneously, but in the view of a common interest. However, it is possible for the parties to agree on the so-called beneficium divisionis (CC art. 1946), i.e. the right of the security provider who is solidarily liable to limit its liability to its share of the secured obligation only when being called for the payment of the whole obligation by the creditor (CC art. 1947). If securities are assumed by a plurality of security providers without the intention to realize a common interest, the liability of the several security providers is separate; nevertheless, as in the former case, the security provider who first pays the creditor is subrogated into its rights against the other security providers (Cass. 6 May 2004 no. 685, Riv.Notar. 2005, 333; Giusti 210; Fragali, Confideiussione 196 s.).

8.In PORTUGAL the rules on solidary debtors (CC art. 518, 527) apply with the necessary exceptions to independently assumed personal securities relating to the same debt, unless the beneficium divisionis has been agreed (CC art. 649 para 1). In the case of jointly assumed personal securities, on the other hand, each one of the providers of security can exercise the beneficium divisionis. However, each of the providers of security is proportionally liable for the share of the co-provider of security who is insolvent or against whom no demands or executions can be made in PORTUGAL (CC art. 649 paras 2 and 3 juncto 640 lit. b).

9.In SPAIN, on the other hand, co-providers of security are separately liable, unless expressly agreed otherwise. CC art. 1837 para 1 establishes the so-called mancomunidad in the following terms: “When there are several providers of security of only one debtor and for one debt only, the obligation of responding therefore shall be divided among all. The creditor can only demand from each surety his corresponding share, unless solidarity has been expressly stipulated” (Lacruz Berdejo 537; Guilarte Zapatero, Notas sobre la cofianza 891 s.; Dı´ez-Picazo 446). Again, these rules are not applicable to independently assumed personal securities.

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D.General Presumption in Favour of Solidary Liability Regardless of Circumstances of Contracting

10.In several countries there is a general presumption for solidary liability (AUSTRIA: for dependent personal securities cf. CC § 1359; for independent personal securities cf. Avancini/Iro/Koziol nos. 3/124-3/125; DENMARK: Promissory Note Act §§ 2, 61; Andersen, Clausen, Edlund a.o./Pedersen 437 s.; DUTCH CC art. 7:850 para 3 juncto art. 6:6 para 2; Asser/Hartkamp no. 95 at p. 78; FINLAND: LDepGuar § 3 para 3; HD 3 Jan.

1996, KKO 1996:1; GERMANY: cf. CC § 769 for dependent personal securities; GREEK CC art. 854; SWEDEN: Law of Commerce Chap. 10 § 11 juncto Promissory Note Act

§ 2; Ekstro¨m 73).

11.This presumption applies regardless of whether the providers of security have acted jointly and whether they had knowledge of the other securities (GERMANY: BGH 24 Sept. 1992, NJW 1992, 2287; Erman/Ehmann § 421 no. 46; Erman/Herrmann § 769 no. 1) and leads to the application of the general rules on solidary liability (GERMAN CC §§ 421-425; GREEK CC arts. 482-488). According to GREEK opinion, however, there should be no solidarity where there is more than one personal security with a maximum amount which is lower than the total amount of the secured claim (Georgiades § 3 nos. 119-120 and § 4 nos. 3-4).

12.A similar presumption applies in the ROMANIC countries. In FRANCE, BELGIUM and LUXEMBOURG (CC art. 2025 (since 2006: FRENCH CC art. 2302)) each of several providers of security can be called upon to pay the whole debt («obligation au tout»). A solidary liability in the strict sense, however, can be presumed only if the providers of

security are merchants (FRANCE: Cass.com. 21 April 1980, Bull.civ. 1980 IV no. 158 p. 123; by contrast, Law no. 94-126 of 11 Feb. 1994 art. 47 para 2 (loi Madelin) prohibits solidary liability in the case of indefinite security assumed by a natural person guaranteeing a professional debt of an individual enterprise; BELGIUM: Declerck-Goldfracht no. 15). However, the creditor is free to demand partial performance from each security provider separately (BELGIAN, FRENCH CC art. 2027 (since 2006: FRENCH CC art. 2304); Van Quickenborne no. 390).

E.Beneficium Divisionis

13.In most of the ROMANIC countries the providers of security can invoke the beneficium divisionis (cf. supra no. 7; BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2026 (since 2006: FRENCH CC art. 2303)); according to PORTUGUESE CC art. 649, if the security had been assumed in common) resulting in separate liability of the providers of security (Van Quickenborne no. 392). In ITALY the beneficium divisionis (supra no. 7) has to be explicitly agreed upon by the parties (CC art. 1947 para 1), similarly in PORTUGAL, if the personal securities have been independently assumed (CC art. 649 para 1). In the other ROMANIC countries this right is always available unless solidary liability is expressly agreed upon. The situation is similar in SCOTLAND (cf. Wilson nos. 28.1, 10.1; Bell § 267). The right has to be invoked explicitly (Van Quickenborne no. 396) and only the security provider who invokes it benefits from the division (Van Quickenborne no. 402). If a co-provider of security is insolvent at the time of invoking the right, the liability of the other providers of security increases proportionally (BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2026 para 2 (since 2006: FRENCH CC art. 2303

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