Business, Legal & Accounting Glossary
A legal expression meaning all people jointly are liable and/or each person individually is liable for repayment of a debt or obligation. Thus, each individual who signed the obligation could be required to repay the entire obligation.
Where two or more persons are liable in respect of the same liability, in most common law legal systems they may either be:
If parties have joint liability, then they are each liable up to the full amount of the relevant obligation. So if a husband and wife take out a loan from a bank, the loan agreement will normally provide that they are to be “jointly liable” for the full amount. If one party dies, disappears or is declared bankrupt, the other remains fully liable. Accordingly, the bank can sue one, or other, or both, for the full amount. However, in suing, the creditor only has one course of action, i.e., the creditor can only sue for each debt once. If, for example, there are three partners, and the creditor only sues two of them for the outstanding loan amount and cannot recover the full amount, he cannot recover the remaining amount from the partner who is left out of the lawsuit.
The converse is several liability, where the parties are liable for only their respective obligations. A common example of several liability is in syndicated loan agreements, which will normally provide that each bank is severally liable for its own part of the loan. If one bank fails to advance its agreed part of the loan to the borrower, then the borrower can only sue that bank, and the other banks in the syndicate have no liability.
Joint and several liability is a hybrid of both; with respect to the claimant, the parties are jointly liable, but as between obligors themselves, the liabilities are several. This means that if the claimant pursues one party, and receives payment in full, that party can then pursue the other obligors for a contribution to their share of the liability.
Joint and several liability is most relevant in tort claims, whereby a plaintiff may recover all the damages from any of the defendants regardless of their individual share of the liability. The rule is often applied in negligence cases, though it is sometimes invoked in other areas of law. In the United States, forty-six of the fifty states have a rule of joint and several liability, although, in response to tort reform efforts, some have limited the applicability of the rule.
Under joint and several liability a plaintiff may recover full damages from any defendant in a case, regardless of what percentage of liability a defendant may owe. If a defendant is found to be even 1% responsible under joint and several liability that defendant can be required to pay 100% of any damages. Supporters of joint and several liability contend that the laws protect a victim from being under-compensated if one defendant cannot pay his or her share of a settlement. Opponents of joint and several liability point to the unfairness of a defendant being found 1% responsible yet being forced to pay 100% of an award. Joint and several liability encourages plaintiffs to look for defendants with “deep pockets.” Joint and several liability primarily applies in tort cases and joint and several liability is valid in 46 states.
Joint and Several liability allows for two or more parties to be “jointly and severally liable for a tortious act.” This process allows for the plaintiff to collect the full damages from an injury case from any of the parties involved. Inequities with this system exist when relatively blameless defendants are required to pay the financial burdens if one of the other defendants is insolvent.
If there are three business partners who have entered into a contract for which there is joint and several liability and the contract is subsequently breached, one of them may be sued and may end up paying all damages. It is then that partner’s responsibility to pursue the other partners for their share of the liability.
Critics of this system argue joint and several liability encourages plaintiffs to unfairly target defendants who are known or perceived to be insured or solvent, and these solvent defendants may be forced to fully compensate a plaintiff far beyond that which is owed by them in the event of a co-defendant’s insolvency. Critics are also concerned about the rising costs of litigation, insurance and damage awards which are allowed under the joint and several liability system.
Joint and several liability is premised on the theory that the defendants are in the best position to apportion damages amongst themselves. Once liability has been established and damages awarded, the defendants are free to litigate amongst themselves to better divide liability. The plaintiff no longer needs to be involved in the litigation and can avoid the cost of continuing litigation.
Defenders of the principle of joint and several liability further argue that it protects victims from being under-compensated if one of the defendants can not pay his or her share of proportionate liability.
Opponents of the principle of joint and several liability note that its use (instead of proportionate responsibility) has led to cases in which a party with a very minor part of the responsibility unfairly shoulders the burden of damages. The classic example is the uninsured drunk driver who injures someone; the plaintiff will sue both the insolvent drunk driver and the state highway department (or automobile manufacturer), hoping to hold the latter 1% or 2% responsible yet forcing them to pay the entire award. Joint and several liability, reform supporters argue, leads to lawyers searching for “deep pockets” to sue (in the expectation that they will settle rather than risk trial), even though those defendants may only be remotely related to an incident.
According to Richard Wehe, Assistant Chief Counsel at the California Department of Transportation, (Caltrans), “I can tell you that in many, many settlement conferences or mediations I am confronted with plaintiff’s lawyer’s statements that, ‘I only need to establish that the state is 1 % at fault and I can recover all of my economic damages.’
Where a financially wealthy defendant can be joined as a defendant, a plaintiff has a greater chance of recovering damages than when the defendants are financially insolvent, or judgment proof.
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This glossary post was last updated: 24th April, 2020 | 1 Views.