Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Jointly and Severally

What it is:

Jointly and severally is a legal phrase that means two or more persons are fully responsible equally for the liability.

How it works (Example):

Jointly means that both parties have joint liability, giving responsibility for the full amount of the obligation to each party.  In this case, for example, if one party dies or declares bankruptcy, the full amount of the obligation falls to the other party.  As such, one or both of the parties can be sued for the full obligation.
  
In contrast, however, “severally" means that the parties are only responsible for their share of the obligation.  For example, if a group of contractors agree to build a project, and one of them fails to complete the work, only that contractor is liable.  The others in the consortium have no liability.

When an agreement states "jointly and severally" liable, a claim may be made to any party in the agreement, similar to joint liability. It is up to the parties to sort out their share of the liability.

Why it Matters:

In a "tort" claim (i.e. providing remedies in a contractual obligation), a suit against a party with joint liability may not include all of the parties.  If the claim leaves someone out, there is no recourse to obligate the missing party.  Joint and several liability covers this potential gap, obligating all parties regardless of whether or not they are named in the suit. This coverage is most relevant in claims of negligence when all of the parties may not be known to the claimant, but, because of joint and several liability, any party is liable for the full claim.

Under joint and several liability, parties with a relatively minor share of the actual liability bear the risk of full liability.  Therefore under this arrangement, parties with "deep pockets" may be exposed to huge risks in a law suit.  As a result, from a business perspective it is important to limit joint and several liabilities because it may obligate the business to liabilities far beyond its share of responsibility.