A solidary obligation, or an obligation in solidum, is a type of obligation in the civil law jurisprudence that allows either obligors to be bound together, each liable for the whole performance, or obligees to be bound together, all owed just a single performance and each entitled to the entirety of it. In general, solidarity of an obligation is never presumed, and it must be expressly stated as the true intent of the parties' will. Contractual solidary obligations are frequently created by insurance policies or co-signing a loan. A common example of a solidary obligation created thorough operation of law is vicarious liability such as respondeat superior.
Solidarity can be either active or passive. A solidary obligation that is active exists among the obligees (creditors) in the transaction. It is passive when it exists among the obligors (debtors) in a transaction. A solidary obligation is almost always an advantage for a creditor because it will either allow any creditor to demand the entirety of the debt from the sole debtor when the solidarity is active, or it will allow the creditor to demand the entirety of the debt from any of the multiple debtors when it is passive.
The origin of solidarity can be traced to a Roman idea known as correality where a single thing was owed by more than one person. Under these circumstances, there was just a single obligation. There was a transformation and growth of this idea during the ius commune before being codified in the Napoleonic Code of 1804.
This is known as active solidarity. An obligation is solidary for the obligees when it gives each obligee the right to demand the whole performance from the common obligor.
For example, if A and B together lend two hundred dollars to C, and it is agreed that each can have the right to seek the whole amount from C upon repayment, C's obligation to repay the money is solidary for the obligees A and B. Generally, full payment to any of the solidary obligees extinguishes the obligation.
A common example of solidary obligations for the obligees is a joint bank account; when two or more names are on an account, they are obligees of the bank's obligation to make funds available on demand. Each obligee would have the right to withdraw the whole amount in the bank account.
Solidary obligations for obligors
This is known as passive solidarity. An obligation is solidary for the obligors when each obligor is liable for the whole performance in such a way that a whole performance rendered by one of the obligors relieves the others of liability toward the obligee. In practice, this is much more frequent than active solidarity. When one co-signs a loan for another, they both become solidary obligors in relation to the debt owed. In regard to liability of the obligors between themselves, the proportions owed by each obligor in a solidary obligation stemming from a contract are deemed to be equal unless a provision in the agreement states otherwise.
Passive solidarity can also be created as an operation of law. In the case of an offense or a tort, if a person has sustained damage because of the shared fault of others, the offenders may be liable in solido in proportion to their fault.
Renunciation of solidarity
Since passive solidarity is mainly a guarantee and benefit for the creditor or obligee, he may renounce it at his pleasure. He may renounce it in favor of one or all of the obligors. If he renounces solidarity for only one of the obligors, this has the important effect of preserving his right to demand the whole performance from the remaining obligors bound in solido, minus the portion owed by the one whose solidarity was renounced. The other obligors could no longer seek any type of contribution from the renounced obligor if one were then required to render the whole performance. The renunciation of solidarity must be express, although it need not be done in any formal manner.
Generally, renunciation of solidarity takes place when he received a partial payment from one of the obligors, although the payment itself does not imply a renunciation. Under the Louisiana Civil Code, an obligee who received a partial performance from an obligor separately will still preserve the solidary obligation against all of the obligors after deduction of that partial performance.
When the debt is cancelled, the creditor forgives the debt, thereby releasing that debtor from the whole obligation. In the context of a solidary obligation, if the obligee cancels the debt of some—but not all—of the obligors, the obligation is reduced by an amount proportionate to those whose debts have been cancelled; the obligee preserves his right to demand the whole from any of the remaining obligors, although his right is limited only to the uncancelled debt.
Unlike the renunciation of a solidary debt, a cancellation affects the object of the entire obligation. It is akin to eliminating that obligor from the obligation. In order to cancel a debt, the traditional method is for the obligee to surrender the debt instrument that evidences the obligation to the obligor. Such a surrender creates a presumption that the debt cancellation was intended to benefit all solidary obligors; this may be rebutted by evidence showing the intent was only to cancel in favor of the obligor to whom the debt instrument was surrendered rather than all of the obligors.
Insolvency of a solidary obligor
If one of the solidary obligors becomes insolvent, such as through bankruptcy, his portion of the debt must be covered by each of the remaining solidary obligors in proportion to their own portions. The insolvency of one or more obligors does not affect the overall relationship between the obligors and the obligee, however, because he still can demand full performance from just one of them.
Even if an obligor has had his solidarity renounced, he still must contribute in some way to make up for the loss resulting in another obligor becoming insolvent; all of the solidary obligors bear the loss arising from insolvency of a solidary obligor in proportion to their portions. However, an obligor who has had his solidarity renounced would never be liable for more than his fair portion if an obligor never becomes insolvent. In this way renunciation of solidarity can be viewed as a middle ground between complete obligation in solidum and from the complete freedom from obligation that debt cancellation results in.
For example, assume A, B, C, and D are liable in solido to X for $10,000. This means of course that X can look to any of these four solidary obligors for the full amount. Assume that X renounces solidarity in favor of A, who pays X $2,500, and that B thereafter goes bankrupt. Unfortunately, there is still $7,500 owed to X, who can collect that amount from either C or D. A's share is now 1/3 (approximately $3,333) because his share has been affected by B's bankruptcy. Assuming the C pays X $7,500, he can seek contribution from D for $3,333 and from A for $833, which is his share of $3,333 minus the amount he already contributed of $2,500.
Indemnity
If the circumstances giving rise to the solidary obligation only concern one of the obligors, then that obligor is liable for the whole obligation. The other obligors are only considered sureties. This means that although the unconcerned parties may be forced to pay the obligee some or all of the money, they can seek the entirety of their contribution from the concerned obligor in full.
Interruption of prescription
The interruption of liberative prescription against one solidary obligor is effective against all of the solidary obligors. Thus, any action that would normally interrupt prescription as to one of the obligors will also prevent the debt from prescribing as to all of the other obligors.
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.
The law of obligations is one branch of private law under the civil law legal system and so-called "mixed" legal systems. It is the body of rules that organizes and regulates the rights and duties arising between individuals. The specific rights and duties are referred to as obligations, and this area of law deals with their creation, effects and extinction.
Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations.
A creditor or lender is a party that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property and service. The second party is frequently called a debtor or borrower. The first party is called the creditor, which is the lender of property, service, or money.
A debtor or debitor is a legal entity that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of this debt arrangement is a bank, the debtor is more often referred to as a borrower.
In finance, a surety, surety bond, or guaranty involves a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults. Usually, a surety bond or surety is a promise by a surety or guarantor to pay one party a certain amount if a second party fails to meet some obligation, such as fulfilling the terms of a contract. The surety bond protects the obligee against losses resulting from the principal's failure to meet the obligation. The person or company providing the promise is also known as a "surety" or as a "guarantor".
In accounting, insolvency is the state of being unable to pay the debts, by a person or company (debtor), at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency.
A guarantee is a form of transaction in which one person, to obtain some trust, confidence or credit for another, agrees to be answerable for them. It may also designate a treaty through which claims, rights or possessions are secured. It is to be differentiated from the colloquial "personal guarantee" in that a guarantee is a legal concept which produces an economic effect. A personal guarantee, by contrast, is often used to refer to a promise made by an individual which is supported by, or assured through, the word of the individual. In the same way, a guarantee produces a legal effect wherein one party affirms the promise of another by promising to themselves pay if default occurs.
Novation, in contract law and business law, is the act of –
replacing an obligation to perform with another obligation; or
adding an obligation to perform; or
replacing a party to an agreement with a new party.
Bankruptcy in the United Kingdom is divided into separate local regimes for England and Wales, for Northern Ireland, and for Scotland. There is also a UK insolvency law which applies across the United Kingdom, since bankruptcy refers only to insolvency of individuals and partnerships. Other procedures, for example administration and liquidation, apply to insolvent companies. However, the term 'bankruptcy' is often used when referring to insolvent companies in the general media.
In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property which enables the creditor to have recourse to the property if the debtor defaults in making payment or otherwise performing the secured obligations. One of the most common examples of a security interest is a mortgage: a person borrows money from the bank to buy a house, and they grant a mortgage over the house so that if they default in repaying the loan, the bank can sell the house and apply the proceeds to the outstanding loan.
The Bankruptcy and Insolvency Act is one of the statutes that regulates the law on bankruptcy and insolvency in Canada. It governs bankruptcies, consumer and commercial proposals, and receiverships in Canada.
As a legal concept, administration is a procedure under the insolvency laws of a number of common law jurisdictions, similar to bankruptcy in the United States. It functions as a rescue mechanism for insolvent entities and allows them to carry on running their business. The process – in the United Kingdom colloquially called being "under administration" – is an alternative to liquidation or may be a precursor to it. Administration is commenced by an administration order.
A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full when due. Cessation of due payments may either be accompanied by that government's formal declaration that it will not pay its debts (repudiation), or it may be unannounced. A credit rating agency will take into account in its gradings capital, interest, extraneous and procedural defaults, and failures to abide by the terms of bonds or other debt instruments.
South African contract law is "essentially a modernized version of the Roman-Dutch law of contract", and is rooted in canon and Roman laws. In the broadest definition, a contract is an agreement two or more parties enter into with the serious intention of creating a legal obligation. Contract law provides a legal framework within which persons can transact business and exchange resources, secure in the knowledge that the law will uphold their agreements and, if necessary, enforce them. The law of contract underpins private enterprise in South Africa and regulates it in the interest of fair dealing.
Insolvency in South African law refers to a status of diminished legal capacity imposed by the courts on persons who are unable to pay their debts, or whose liabilities exceed their assets. The insolvent's diminished legal capacity entails deprivation of certain of his important legal capacities and rights, in the interests of protecting other persons, primarily the general body of existing creditors, but also prospective creditors. Insolvency is also of benefit to the insolvent, in that it grants him relief in certain respects.
A Personal Insolvency Arrangement (PIA) is a statutory mechanism in Ireland for individuals who cannot repay their debts as they come due but who wish to avoid bankruptcy. The arrangement is one of the three alternatives authorized under Ireland's Personal Insolvency Act 2012; Debt Settlement Arrangements (DSA) and Debt Relief Notices (DRN) are the other two arrangements. A PIA is a legal agreement between a debtor and their creditors that is mediated and administered by a Personal Insolvency Practitioner (PIP). A PIA usually lasts for a term of six years and must include both unsecured debt and secured debts.
British Virgin Islands bankruptcy law is principally codified in the Insolvency Act, 2003, and to a lesser degree in the Insolvency Rules, 2005. Most of the emphasis of bankruptcy law in the British Virgin Islands relates to corporate insolvency rather than personal bankruptcy. As an offshore financial centre, the British Virgin Islands has many times more resident companies than citizens, and accordingly the courts spend more time dealing with corporate insolvency and reorganisation.
Australian insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is principally governed by the Corporations Act 2001. Under Australian law, the term insolvency is usually used with reference to companies, and bankruptcy is used in relation to individuals. Insolvency law in Australia tries to seek an equitable balance between the competing interests of debtors, creditors and the wider community when debtors are unable to meet their financial obligations. The aim of the legislative provisions is to provide:
In Bulgaria, the law of obligations is set out by the Obligations and Contracts Act (OCA). According to article 20a, OCA contracts shall have the force of law for the parties that conclude them.
References
L.T.C. Harms. “Obligations”, in The Law of South Africa, 2nd edn. Vol. 19: Negotiable instruments, nuisance, obligations, partnerships. Eds. W. A. Joubert & J. A. Faris. Durban: Butterworths, 2006.
R. W. Lee, Tony Honoré, E. Newman, & David Jan McQuoid-Mason. The South African law of Obligations, 2nd edn. Durban: Butterworths, 1978.
Saúl Litvinoff. The Law of Obligations, 2nd edn. 2 vols. Revised by Ronald J. Scalise, Jr. (Vols. 5 and 6, Louisiana Civil Law Treatise Series). Eagan, Minn.: Thomson Reuters, 2018, pp. 1:138-140, 142-143, 153-155, 158-162, 171-173.
Saúl Litvinoff & Ronald J. Scalise, Jr. The Law of Obligations in the Louisiana Jurisprudence: A Coursebook, 6th rev'd edn. Baton Rouge: LSU Paul M. Hebert Law Center, 2008.
In Loan Partners, LLC v. PTC Family Investments, LLC, ___ So.3d ___, 2014 WL 6725727 (La.App. 4 Cir. 2014), the court cited Marsh Engineering, Inc. v. Parker, 883 So.2d 1119 (La.App. 3 Cir. 2004), which considered whether a solidary obligor could benefit from the application of La. R.S. 9:5605, the application of which released an attorney solidary obligor, when the non-attorney solidary obligor did not have the requisite attorney-client relationship to assert a defense under this statute. The court explained: "A solidary obligor may raise against the obligee defenses that arise from the nature of the obligation, or that are personal to him, or that are common to all the solidary obligors. He may not raise a defense that is personal to another solidary obligor." La.Civ.Code art. 1801. "[W]hen an immunity from suit is classified as personal, an insurer may not plead the immunity as a defense to a suit under the Direct Action Statute." Liberty Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 579 So.2d 1090, 1093 (La.App. 4 Cir.), writ denied, 586 So.2d 563 (La.1991). Thus, the question is whether the protection provided an attorney under La. R.S. 9:5605 is personal to the attorney. We conclude it is not." Id., 04–0509, p.11, 883 So.2d at 1127.
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