What is a Joint Liability?

When two or more parties are legally responsible for something, such as a debt or potential legal damages, joint liability exists. Joint liability is particularly common between spouses and business partners. It is often created when two parties enter into a written contract agreeing to be equally liable for something. The concept of joint and several liability is also used by plaintiffs seeking to recover damages in civil lawsuits.

Joint liability is frequently used in the area of debts. For instance, suppose that a husband and wife take out a $100,000 US Dollars (USD) mortgage on a new house and that they have agreed to joint liability on the loan. This means that each of them is responsible for the debt on the house. If they stop making the payments, the bank could collect the entire $100,000 USD balance from either the husband, the wife, or both together. If the husband dies, the bank could still require the wife to make all of the payments.

Business partners frequently agree to joint liability when securing loans. For example, suppose that John and Jane have started a staffing agency and are general partners. Assume that they take out a business loan, agreeing to joint liability, in the amount of $50,000 USD from the bank and that John agrees, off the record, to be responsible for making the payments. If John misses several payments and the bank wishes to collect on the loan, the bank can look to either John or Jane for the money. This is true even if Jane was not at fault for missing the payments.

Joint and several liability occurs when each party is liable for a total judgment, even if only one of the parties is responsible for the damages inflicted. For instance, suppose that John and Jane co-own a grocery store and that Rose is shopping in the store. The store has a broken floorboard and John has been putting off having it repaired, even though he told Jane it was done weeks ago. If Rose steps on the floorboard and injures herself, she may file a claim against John and Jane for negligently maintaining the floor. Rose can seek to recover all of her damages from John and Jane collectively, or she can seek a judgment against just John or just Jane.

Joint liability is distinct from several liability. Under a several liability arrangement, each party is responsible only for his or her share. Consider, for example, a business contract in which two banks have severally agreed to fund a loan for a borrower. If one of the banks fails to fund the loan, the other bank would not be liable under a several liability agreement.