Joint and several liability arise where two or more people who are party to an agreement have made a promise to do the same thing, or in relation to a partnership. It is important to understand how liability works to protect your company and understand contractual obligations.
What is Joint Liability?
Joint liability generally arises when two or more people jointly promise to one another to perform the obligation. For example, both A and B promise to pay $100 to X. A and B jointly take on full responsibility for the whole of the obligation. Performance by A or B would relieve the others of the obligation, as they have agreed to be liable for the same obligation. The person to whom the obligation or promise is owed, X, could sue either one or all of the jointly liable parties for the full outstanding obligation.
In the context of a partnership of two or more people, each individual would be equally liable for potential legal action related to their business. This means members of a partnership can still be held jointly liable even if partners agreed to a contract without their knowledge or approval.
What is Several Liability?
Several liability exists when two or more people have made separate agreements with another party. An example of this is where A promises to pay $100 to X and B promises to pay $100 to X. It means A discharging their obligation will not take away the B’s obligation to fulfil their own promise.
What about Joint and Several Liability?
Two or more persons are jointly and severally liable when they promise under the same contract to do the same thing, and also severally make separate promises to do the same thing. So, A and B promise to pay $100 to X, and A promises to pay $100 to X, and B promises X $100. In this circumstance, X (the party owed the promise) can sue all the parties together, or each separately. Until the obligation is discharged, A and B are liable for the entire obligation. Performance by one person will discharge all the others.
Claims Outside Contract?
Two people who commit the same tort may be ‘jointly and severally liable’ in tort. Concurrent liability also arises in relation to misleading and deceptive conduct. The allocation of liability in these cases depends on the circumstances of each case and your State or Territory’s ‘proportionate liability’ provisions.
You should ensure you understand the difference between ‘joint’, ‘several’, and ‘joint and several’ liability when making agreements with other parties. These terms significantly affect the obligations you owe under contract. For assistance with forming a partnership agreement or determining liability under contract, get in touch with OpenLegal on 1300 337 997 or fill in the contact form on this page.