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What is Joint and Several Liability?

What is Joint and Several Liability?

If you find your business is involved in legal proceedings, it's important to know the kind of liability that may arise. Learn more about joint and several liability here.

29th July 2019

Introduction

No matter what size or industry, liability is always a concern for all business ventures.

A liability claim can seek much more than the entire assets of the company. So, as a business owner, it is important for you to understand liability and how it affects your company. It’s not difficult to protect your company once you understand the different ways in which liability works.

This article will mainly explore the ways in which joint and several liability arises. It arises when two or more parties sign a contract, or in the context of forming a partnership.

What is Joint Liability?

Joint Liability often arises when two or more people jointly promise to one another to do the same thing. This also means that they are each liable up to the full amount of the relevant obligation. Any partnership of two or more people would be equally liable for debts and potential legal action related to a business. Normally, there is only one obligation and the performance by one party to the contract will discharge the others.

If you wish to share financial risks, consider entering into a Joint Venture Agreement with another company or individual to work together for a common business objective.

Remember that if you form a partnership, you can still be held jointly liable even if your partner agreed to a contract without your knowledge or approval.

What is Several Liability?

Several liability arises when two or more people make different agreements to another whether under the same contract or different contracts. Accordingly, all parties are liable for just their own respective obligations. Here, the promises are cumulative and the performance by one party does not discharge the other. For instance, if one partner did not meet the obligation under the loan, then the lender would only be able to sue the one partner for failure to meet their obligation.

What is Joint and Several Liability?

This is a broad form of contractual liability that combines both joint liability and several liability. It arises when 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. In this case, the other party can sue all the parties together, or each separately. When partners have joint and several liability for a debt, a creditor may sue any one partner for repayment. Moreover, performance by one person will discharge all the others.

Conclusion

The doctrine of joint and several liability can be confusing. Hence, it is prudent to get your partnership agreement or contract reviewed by a contract lawyer.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

Author
Anupa Dhital

Anupa is a Legal Intern at Lawpath, and is currently in her final year of studying Bachelor of Laws at Macquarie University.