Joint and several liability: Overview, definition and example
What is joint and several liability?
Joint and several liability means that two or more people or companies are each responsible for the full amount of an obligation, such as paying a debt or damages. The person owed money can demand the entire amount from any one of them, regardless of who was more at fault or who was supposed to pay what.
Why is joint and several liability important?
It’s important because it guarantees that the person owed money gets paid, even if one of the responsible parties can’t or won’t pay. For those held liable, it’s a reminder that they could end up covering everything if the others don’t step up, so choosing reliable partners is critical.
Understanding joint and several liability through an example
Let’s say two business partners, Alex and Jamie, take out a loan for their company. If the company can’t pay back the loan, the lender can demand the entire amount from either Alex or Jamie. If Alex pays the full amount, they can then try to recover Jamie’s share, but the lender isn’t required to pursue both partners—it’s Alex’s responsibility to sort that out.
In another example, imagine three contractors are hired for a project, but the work goes wrong, causing the client financial losses. The client can demand the full compensation from any one of the contractors, even if they were only partly to blame. It’s then up to the contractor who paid to recover the others’ shares.
An example of a joint and several liability clause
Here’s how a clause like this might appear in a contract:
“Each Party shall be jointly and severally liable for all obligations under this Agreement, meaning any Party may be required to fulfill the entire obligation.”
Conclusion
Joint and several liability makes sure the person owed money gets what they’re entitled to, without worrying about dividing responsibility among the parties at fault. For those involved in such agreements, it’s a good reminder to choose reliable partners and fully understand the risks of being held accountable for more than your share.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.