Joint and Several Liability Clause: Risks & Drafting Tips

The primary purpose of a Joint and Several Liability clause is to ensure that the non-breaching party can recover damages or enforce contractual obligations, even if one or more of the liable parties is unable or unwilling to fulfill their responsibilities. This provision is particularly useful in contracts involving multiple parties, where the risk of non-performance or insolvency is higher.

This clause states that if there are multiple obligors, they are jointly and severally liable, meaning each is responsible for the entire obligation and the creditor can pursue any or all for full amount. Without this clause, jurisdictions vary: some treat co-obligors as joint by default, which can have procedural issues (e.g., all must be sued together under old common law rules), so modern contracts spell it out. If multiple obligees, sometimes one can give a discharge (joint and several rights). Unique drafting: also consider adding that a release of one doesn’t release others (to avoid common law rule to the contrary), and if one pays, the others’ liability is reduced accordingly (and possibly that co-obligors will sort out contribution among themselves).

Usually found in the Obligations or Guarantee article of credit, construction, partnership, or lease documents, the clause:

• Declares that all signatory obligors are “jointly and severally” liable.
• Allows the creditor to sue any one obligor for 100 % of the amount due.
• Preserves the creditor’s rights even if it releases or compromises with another obligor.
• Sits alongside a contribution or indemnity-among-obligors paragraph.

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To understand this clause, one must understand the Joint Liability and Several Liability separately:

Joint Liability:

• Joint liability arises when two or more parties are collectively responsible for the same obligation or debt. Under joint liability, the creditor can pursue any or all jointly liable parties for the full amount owed, regardless of their individual contributions or fault. If one jointly liable party fails to pay their share, the others are still responsible for the entire obligation.

Several Liability:

• Several liability means that each party is individually responsible only for their proportionate share of the obligation or debt. Under several liability, the creditor must pursue each liable party separately for their respective portion of the total liability. Each party's exposure is limited to their individual share, and they are not responsible for the portions owed by others.

A well-drafted Joint and Several liability clause contains:

1. Identification of Liable Parties: The clause should clearly identify the parties subject to joint and several liability, which may include individuals, businesses, or other legal entities.
2. Scope of Liability: The clause should specify the contractual obligations or breaches for which the parties are jointly and severally liable. This may include payment obligations, performance guarantees, or indemnification requirements.
3. Right to Seek Full Compensation: The clause should establish the non-breaching party's right to seek full compensation from any or all of the liable parties, regardless of their individual share of responsibility.
4. Contribution Rights: The clause may also address the rights of the liable parties to seek contribution from each other, which allows a party who has paid more than their fair share of the damages to recover the excess amount from the other liable parties.

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Example language:

• Partnership Agreement: In a contract between partners in a business venture, the joint and several liability clause may establish that each partner is responsible for the partnership's debts, obligations, and liabilities. This ensures that the creditors or other parties can recover their dues from any or all of the partners, even if one partner is insolvent or unwilling to pay.
• Loan Agreement: In a contract between a lender and multiple borrowers, the joint and several liability clause may require each borrower to be responsible for the full repayment of the loan, regardless of their individual contributions to the borrowed funds. This provides the lender with greater security, as they can pursue repayment from any or all of the borrowers in the event of default.

Example 1:

"Party A and Party B hereby agree to be jointly and severally liable for any and all debts, liabilities, and obligations arising from or relating to the performance of this Agreement. Each party shall be responsible for the full satisfaction of any claim or demand made by any third party in connection with this Agreement, irrespective of the individual share of liability attributable to each party."

Example 2:

"The Borrower and the Guarantor acknowledge and agree that they shall be jointly and severally liable for the repayment of the Loan and any interest, fees, and costs associated therewith. In the event of default, the Lender may, at its sole discretion, pursue any and all legal remedies against the Borrower, the Guarantor, or both, without prejudice to any other rights or remedies available to the Lender under this Agreement or applicable law."

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Contract types where J&S liability is critical:

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Common structures and market practices:

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Key drafting notes for a Joint and Several Liability clause:

• Fairness and Risk Allocation: Evaluating whether the joint and several liability is appropriate and fairly allocates risks among the parties based on their respective roles, responsibilities, and bargaining power.
• Potential Exposure: Carefully assessing the potential liabilities and financial exposure that a party may face under the joint and several liability provision.
• Contribution and Indemnification: Ensuring that adequate mechanisms for contribution and indemnification are in place to protect parties from disproportionate liability or unfair burden-sharing.
• Dispute Resolution: Analyzing the effectiveness and enforceability of the dispute resolution processes for resolving liability allocation disputes among the jointly and severally liable parties.
• Governing Law and Jurisdiction: Considering the applicable laws and jurisdictions that may impact the enforceability and interpretation of the joint and several liability clause.

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Historic note:

At common law, “joint” liability (not “and several”) meant all co-obligors had to be sued in one action; if one died, obligations could pass oddly. The clause “joint and several” avoids that. A case example: Bank v. Smith & Jones (hypothetical) – if Smith and Jones are joint & several guarantors for $1M and Smith is bankrupt, bank can sue Jones for full $1M. Jones then might chase Smith’s estate for contribution. A real scenario: bond agreements with co-sureties often had litigation in 1800s establishing these rules. More recently, multi-defendant tort cases (though tort, not contract) use joint/several concept for judgment – some states reformed that (comparative fault), but in contracts, parties usually voluntarily agree to joint/several. Another context: Eurobond issues often have a clause that all issuers are joint and several to assure investors any one issuer can be sued for full payment. This is a backbone clause in multi-party credit contracts.

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Jurisdiction specific notes:

• U.S.: If not stated, contract law often assumes joint liability for co-promisors (e.g., Uniform Joint Obligations Act in some states, otherwise common law). But best practice is to explicitly state “joint and several.” Also, UCC 3 (negotiable instruments) says co-signers are jointly and severally liable by default.
• ‍U.K.: Historically purely joint liability had quirks (had to sue all or you risked releasing others). The Civil Liability (Contribution) Act 1978 allows contributions among defendants, but that’s tort-focused. In contract, expressly making it joint and several simplifies enforcement. And by Law of Property Act 1925, joint obligations are presumed joint (not several) unless stated – meaning all jointly entitled persons must act together. So for multiple promisees, say “joint and several rights” if you want either alone to be able to enforce.
• ‍Drafting tip: Also include “Each obligor waives any requirement that the other obligors be joined in any suit” – to prevent procedural defenses. Contribution & Indemnity among co-obligors: sometimes contracts stipulate how co-borrowers share the burden between themselves to avoid later fights.

Bottomline:

A Joint and Several Liability Clause is the creditor’s collection rocket and the co-obligor’s biggest headache. Keep the language crystal clear, align any caps or contribution rules, and everyone knows exactly where the buck (all of it) stops.