29 Jul 2005

Did you know what joint, several and joint and several liability mean?

by Audine Bartlett

If the intention is to create either joint liability or several liability, express words should be used to make that intention clear.

This month's 'Did You Know?' focuses on the contractual basics of joint, several, and joint and several liability.

Where a contract is made by two or more parties it may often comprise a promise which is given by two or more persons, or to two or more persons. A joint promise by two or more persons creates a single obligation falling on both or all. The basic contractual theory behind joint and several obligations is that it creates both a joint obligation upon all the parties and also a number of several obligations which respectively fall upon each party to the contract.

Joint liability arises when two or more persons jointly promise to another person to do the same thing. Here, there is only one obligation and the performance by one party to the contract will discharge the others. An example would be where a husband and wife enter a contract to buy a house jointly. Until the settlement price is paid, both of them are liable for the full price and the vendor can sue either or both of them for the full amount. Once the price is paid by one of them, the other no longer has an obligation to the vendor to pay.

There is a presumption that a promise made by two or more persons is joint and therefore express words are required to make the liability 'joint and several'. An examination of the intention of the parties and the language used in the contract will determine if the presumption can be rebutted.

However, legislation does provide for particular promises to be joint, or even joint and several. For example, in partnership law joint liability applies with regard to the liability of partners for partnership debts.

Several liability arises when two or more persons make separate promises to another, whether under the same contract or different contracts. The promises are cumulative and payment by one person does not discharge the other. An example would be a joint venture where the participants have agreed to pay a contractor for work to be performed for the joint venture (and it is agreed that this obligation to pay is several). Each joint venture participant will be liable for its percentage of the fee to be paid and not for the total fee.

Joint and several liability arises where two or more persons under the same contract jointly promise to do the same thing, and also severally make separate promises to do the same thing. This type of liability gives rise to one joint obligation and to as many several obligations as there are joint and several promisors. Like joint liability, the co-promisors are not cumulatively liable, so that performance by one discharges all the remaining promisors. However, each co-promisor is liable for the entire obligation until it is performed by one (or more) of the promisors. When the obligation is joint and several, the claimant can sue all the promisors together or choose to sue each separately (if this is more appropriate).

In a guarantee situation, joint and several liability means the lender or creditor can recover the whole indebtedness from any one of the parties (who are then left to sort out their respective contributions between themselves).

Contributions between joint debtors

There is a right of contribution among joint, and joint and several debtors. If a party has paid more than his or her fair share of a debt, they can recover the excess from the others in equal shares, unless there is an agreement to the contrary. If a party merely pays his share of a debt and no more, there is no present right to contribution.

Release and covenant not to sue

As discussed, payment of the debt by any one of a number of joint or joint and several debtors operates as a discharge of all. However, a 'covenant not to sue' one co-promisor does not release the others or bar them, once they perform their obligations under the contract, from recovering contribution. This is because a release involves a total destruction of the debt or claim, whereas a covenant not to sue usually involves the creditor not taking proceedings against a particular debtor, but does not involve the creditor relinquishing their rights against any other party liable.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.