Joint and Several Liability: What Does it Mean and What are the Differences?

Authors: Zeinab Farhat & Gianluca Pecora, Progressive Legal

Joint and several liability is a concept which needs to be considered when entering into and/ or drafting contracts, as understanding the implications of this concept can assist in understanding any potential liability that may arise, or any obligations imposed  upon contracting parties.  

This article will consider everything you need to know about joint liability, several liability and joint and several liability.

What is joint liability?

Put simply, joint liability arises when multiple parties promise to perform the same obligation. 

Example:

Imagine Party A and Party B, together, agreed to pay $100 to Party C. In this case, both Party A and Party B are liable to be sued together should they not fulfil their obligations as promised. Paying $50 does not alleviate Party A of liability, it only reduces Party A and B’s debt pool to Party C. 

Alternatively, if Party A pays the full $100, then both Party A and B are in the clear.  

Party C will have difficulty initiating action against Party B unless Party A is also a party to the legal proceedings.  

When is joint liability best?

Joint liability is often best if you are the party being sued.  

Joint liability allows parties to a contract to join legal forces, combining key documents, people and other resources. This is especially valuable if you are an individual and the other party is an organisation with superior resources and the ability to potentially cover any debt you are unable to pay.  

What is several liability?

What is joint and several liability?

Joint and several liability arises when multiple parties promise to perform the same obligation but within a particular responsibility split or payment split.  

Example:  

Party A agreed to pay 40% of the $100 amount and Party B agreed to pay 60%. In the case of joint and several liability, if Party A pays $40, he will still be liable for Party B’s lack of payment.  

However, Party C can choose to sue only one party – unlike with joint liability. Circumstances where it would be strategic for Party C to do so are if Party was actually the wealthy “Pty Ltd”, or, if Party B was inaccessible due to living overseas.  

When is joint and several liability best?

This option is best if you are worried that the other parties to the contract are likely to not meet their obligations under the contract. This option shares the risk by rendering both parties responsible for the debts.  

Telling the difference

In most contracts which have been drafted properly, the “interpretation” section should have a “Liability” clause that identifies whether the liability under the contract is owed jointly, several ,or jointly and severally.  

If this clause does not exist, consider these clues to identify liability type:  

Joint liability clues

There is a presumption that if a promise is made by multiple parties, it is likely made with joint liability. Wording like “Party A and Party B will pay $100” suggests joint liability. If parties are members of a partnership with each other, liability is highly likely to be joint.

Several liability clues

Where one party is a debtor, and the other is a guarantor, liability is highly likely to be several.

Joint and several liability clues

Wording like “I promise to pay $100” followed by a signature from multiple parties. 

Key Takeaways

Understanding the distinction between different types of liability is essential if you are entering into a contract which is likely to attract either of the variations. In summary:  

• Joint liability means that parties to a contract are sued together. Joint liability should be sought if the other party has superior resources to assist in proceedings;  
• Several liability means that parties to a contract must be treated separately for legal action. Several liability is suggested if the other party is at a high risk of failing to adhere to their obligations;
  
• Joint and several liability means that parties are legally responsible for all obligations in unison, but the plaintiff may still choose to sue only one party if strategic; and 
• Most contracts have an “interpretation section” which should have a ‘liability’ clause which identifies the liability. Other factors also affect type of liability. 

If the type of liability in a contract is still unclear, you may need to seek legal advice from lawyers who can review and provide you with advice on your contract.

At Progressive Legal, our lawyers are specialists in commercial law for small to medium sized businesses. We can identify liability and draft tailored contracts that allocate the best type of liability for your situation. For contracts that protect you, call us today on 1800 820 083 or request our expert advice below.

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