Title: Jointly and Severally — What It Means, Why It Matters, and Practical Steps to Manage the Risk
Key takeaways
– “Jointly and severally” (also called “joint and several”) means each named party is individually responsible for the entire obligation and also collectively responsible with the other parties. A creditor can pursue any one party for the full amount. (Investopedia)
– “Severally” (but not jointly) means each party is responsible only for its own proportionate share.
– Joint and several liability is common in lending, torts, partnership law, and securities underwriting; it protects claimants but can shift disproportionate risk to an otherwise minor party.
– Practical steps—contract drafting, insurance, indemnities, guarantees, and contribution/subrogation mechanisms—can limit or manage exposure.
Definitions and core concepts
– Jointly and severally: All named parties are both jointly (together) and severally (individually) liable. If A and B are jointly and severally liable for $100,000, a creditor may pursue A for the whole $100,000; A may then seek contribution from B. (Investopedia)
– Severally only: Each party is liable only for its assigned share (e.g., A 30% => $30,000). Creditors cannot collect more than the proportionate share from any single party.
– Joint and several liability: legal doctrine often applied in torts and contract claims—benefits plaintiffs by improving chances of full recovery; burdens defendants by potentially allocating full loss to one defendant. (Cornell LII)
When and where the phrase is used
– Loans/guarantees: Lenders frequently require joint-and-several liability from multiple borrowers or guarantors to maximize recoverability.
– Partnerships: Partnership agreements may impose joint-and-several obligations for partnership liabilities unless the agreement states otherwise.
– Torts/employer liability: Multiple parties responsible for an injury may be held joint and several.
– Underwriting/syndicates: Syndicate members agree to sell or purchase shares. “Jointly and severally” underwriting means each underwriter bears responsibility for their allotment plus a proportional share of unsold securities; “severally” means each underwriter only takes their agreed slice and is not responsible for shortfalls of others. (Investopedia)
Practical examples
– Loan example: Two borrowers sign a $100,000 loan agreement jointly and severally. Borrower A defaults and has only $20,000 available; the bank can sue Borrower B for the full $100,000. If B pays $100,000, B can sue A for contribution up to A’s share under contract/law.
– Underwriting example: A syndicate agrees A:30%, B:40%, C:30% jointly and severally. If 10% of the issue is unsold, each underwriter must take a portion of that unsold amount proportionate to their syndicate share.
Advantages and disadvantages
Advantages (from claimant/creditor perspective)
– Easier recovery: A claimant can pursue a single solvent defendant for the total amount rather than litigating against multiple parties.
– Reduced risk of under-recovery when some parties are insolvent or judgment-proof.
Disadvantages (from debtor/partner/underwriter perspective)
– Unequal burden: A minor participant can end up paying more than its fair share if co-parties cannot pay.
– Increased litigation risk: Contribution claims and subrogation proceedings may follow, causing cost and delay.
– Business/distribution consequences for underwriters who may have to absorb unsold portions beyond their original commitment. (Investopedia)
Severally liability (explained)
– Severally (several) liability means each party is responsible only for its own obligations. If one party fails, others are not required to make up the shortfall. This limits exposure for co-obligors but may leave claimants with incomplete recovery if some parties are insolvent.
Practical steps to protect parties before signing and to manage post-claim obligations
A. Before signing agreements
1. Clarify wording and intent
– State explicitly whether liability is “joint and several,” “several only,” or apportioned by percentages.
– Example clause (joint & several): “The Borrowers shall be jointly and severally liable for repayment of the Loan and all obligations under this Agreement.”
– Example clause (several): “Each Borrower shall be severally liable for its respective proportion of the Loan as set forth herein, and no Borrower shall be liable for the obligations of any other Borrower.”
2. Negotiate allocation and caps
– Specify percentage shares, caps on liability, or limits to joint-and-several exposure.
3. Require guarantees and recourse
– Obtain personal guarantees from principals, parent company guarantees, or collateral pledges to broaden recovery sources.
4. Indemnities and contribution clauses
– Contractually require co-parties to indemnify or contribute for liabilities beyond agreed shares.
5. Insurance
– Obtain appropriate liability insurance (general, professional, E&O, D&O) with adequate limits and named insured status for parties who need protection.
6. Due diligence and credit risk assessment
– Assess co-obligors’ solvency and negotiate protections (escrow, reserve funds) if partners are small or risky.
7. Draft dispute-resolution and recovery mechanisms
– Include clear procedures for claims, contribution actions, recovery priorities, interest, and enforcement.
8. Consider corporate structure and limited liability entities
– Use entities (LLCs, corporations) to limit personal exposure where appropriate.
9. Use legal counsel
– Have counsel draft or review clauses, and check applicable jurisdictional rules about joint liability and contribution.
B. After a claim or payment
1. Exhaust remedies against primary debtor(s)
– Creditors typically pursue the most solvent party first when joint-and-several obligations exist.
2. Contribution and indemnity actions
– If you pay more than your share, bring a contribution claim against co-obligors under contract or statute; seek indemnification per contractual promises.
3. Subrogation and recovery
– After paying the creditor, the payer may be subrogated to creditor rights (step into the creditor’s shoes) to pursue co-debtors or collateral.
4. Use negotiated procedures
– Follow any contractual dispute-resolution routes (mediation/arbitration) that apply.
5. Enforce security/guarantees
– Seize collateral, call guarantees, and use available claim priorities.
6. Document everything
– Keep detailed records of demands, payments, and communications to support contribution or indemnity claims.
Drafting checklist for contracts that create shared obligations
– Define parties and obligations clearly.
– Specify whether liability is joint and several or several only.
– If joint and several, define contribution and subrogation rights and processes.
– Allocate percentages or caps where possible.
– Require collateral/guarantees if appropriate.
– Require insurance, list named insureds, and specify waiver of subrogation between co-obligors if desired.
– Include governing law and dispute-resolution provisions.
– Provide notice, defense, and indemnity mechanisms for third-party claims.
– Include remedies and recovery costs, including attorneys’ fees and interest.
Special considerations for securities underwriting
– Syndicate agreement: Clearly state each underwriter’s obligations—how unsold shares are allocated, how liabilities are shared, and whether liability is joint and several or several.
– Bookrunner/lead-manager roles: Negotiate allocation of fallback obligations and underwriting fees.
– Be aware of market custom and securities law obligations that may influence liability allocation. (Investopedia)
Remedies and legal doctrines to know
– Contribution: right of a co-obligor who paid more than share to recover from other co-obligors.
– Indemnity: contractually agreed shift of loss from one party to another.
– Subrogation: after payment, the payer can step into the creditor’s rights to pursue others or collateral.
– Jurisdictional variation: Rules on joint-and-several liability, contribution, and apportionment vary by state/country—local law matters. (Cornell LII)
When joint-and-several liability is appropriate
– When the claimant’s recovery is the priority and co-obligors have varying solvency.
– In consumer lending or commercial loans where lender protection is critical.
– In tort matters where multiple parties contributed to harm and the law favors full recovery to injured party.
When to avoid joint-and-several language
– When parties want clear proportional risk allocation and to avoid exposure to other parties’ insolvency.
– Where a small investor or passive participant would be unfairly burdened by others’ negligence.
Bottom line
“Jointly and severally” shifts the risk of nonpayment or liability onto each named party such that any one party can be held for the full obligation. That legal formulation benefits creditors and claimants but can unfairly burden smaller or less culpable parties. Careful contract drafting, negotiated limits, guarantees, insurance, and contribution/indemnity provisions are practical tools for managing the risks created by joint-and-several obligations. Always review specific contract language and consult counsel to understand how local law treats joint, several, and joint-and-several liability. (Investopedia; Cornell Law School, Legal Information Institute)
Sources
– Investopedia. “Jointly and Severally” (Michela Buttignol). https://www.investopedia.com/terms/j/jointlyandseverally.asp
– Cornell Law School, Legal Information Institute. “Joint and Several Liability.” https://www.law.cornell.edu/wex/joint_and_several_liability
If you’d like, I can:
– Draft sample contract clauses (joint-and-several, several-only, contribution/indemnity, guarantee) tailored to a loan, partnership, or underwriting agreement.
– Provide a state-specific summary of how contribution and joint-and-several liability are treated in a particular jurisdiction. Which would you prefer?