Joint liability means the obligation of two or more partners to repay a debt or to be responsible for the settlement of a liability. Joint and several liability allows the parties to share the risks linked to debt and to protect themselves in the event of disputes. An individual subject to joint responsibility may be called “jointly liable”.
Breaking down joint responsibility
Joint liability for a debt is the result of the fact that two or more parties have jointly requested credit as joint borrowers, which is implicit in a general partnership. Under the regulations of a general partnership, any partner concluding a contract with or without the knowledge of other partners automatically binds all partners to this contract. If a court finds that a partnership is a fault in a legal action, then each partner is responsible for the payment of any legal liability or monetary compensation. As such, any partner entering into a joint liability agreement should be aware that they too are responsible for the actions of each of the other partners with respect to the partnership.
Example of joint responsibility
An example of joint responsibility would be when both spouses sign a loan. If one spouse dies, the other remains responsible for the balance of the loan as a co-signer. However, it depends on the borrower’s default.
With joint liability, creditors can take legal action once for any debt. In the case of partnerships, creditors tend to choose the one with the deepest pockets or the ones most likely to pay, since they cannot seek additional amounts from other partners.
Joint and several liability
Multiple liability (or proportionate liability) is when all parties are responsible for their own respective obligations. In fact, it is the opposite of joint responsibility. For example, if several business partners took out a loan for their business under the agreement, each partner was responsible for its own share (joint and several liability). In such a case, if a partner does not fulfill his obligation under the loan, the lender can only prosecute the partner for non-compliance with his obligation. Several responsibilities are often used in syndicated loan agreements.
Joint and several liability against joint and several liability
When the partners have joint and several liability for a debt, a creditor can sue any partner for reimbursement. It is a variant of joint responsibility. If a partner pays the debt, that partner can sue other partners to collect its share of the debt. In short, the onus is on the defendants to sort and reconcile their separate shares of liability and payments.