Jointly and Severally

Definition

“Jointly and Severally” is a legal term used in finance that signifies a joint agreement among two or more parties where each party is both individually and collectively responsible. This means any party involved can be held liable for the full amount of an obligation or debt. This term often applies to situations involving loans, leases, or other forms of debt.

Phonetic

Jointly: /’ʤɔɪntli/Severally: /sɪ’verəli/

Key Takeaways

1. Joint and Several Liability: This term ‘Jointly and Severally’ is typically used in legal contexts and signifies that multiple parties can be held liable for the same event or act and can be responsible for all restitution required. In this scenario, a claimant can pursue an obligation against one party as if they were jointly liable and then also pursue it against them as if they were severally liable. Being ‘Severally’ liable means each individual party is liable for their own obligations only.
2. Common Use in Loans and Contracts: ‘Jointly and Severally’ concept is often applied to partnerships or multiple borrowers on a loan. If one party cannot fulfill their obligation to repay a debt, the other party is then required to repay the full amount. This ensures a lender or other party to a contract has the security of being able to collect the full amount due even if parts of that obligation were initially assigned to multiple parties.
3. Risk and Accountability: While ‘jointly and severally’ offers protection to lenders or businesses, it may pose a risk for the parties held liable. Everyone involved should understand the implications before entering into such an agreement. They should recognize that if they are held jointly and severally liable, they could potentially be responsible for more than their originally intended obligation.

Importance

The business/finance term “Jointly and Severally” is important because it pertains to the legal responsibility and liability of multiple parties involved in a contract or agreement. This term means that all parties involved are equally responsible for the obligations and, if any defaults occur, each party can be held individually liable for the full amount. It plays a crucial role in business agreements, as it provides protection for the party that is owed a payment or service. If one party cannot fulfill its obligations, others can be obligated to fulfill them to ensure that the contract’s terms are met. This approach can help mitigate risks and provide security in a variety of financial and legal situations.

Explanation

The term “Jointly and Severally” is a legal term used in the realm of financial agreements and contracts, specifically referring to the responsibility of debt or liability. Its main purpose is to ensure that the debt or obligation will be fulfilled, regardless of any shortcomings from the individual parties involved in the agreement. When a contract is marked as jointly and severally, each person involved is independently liable for the full amount of the obligation, providing additional security that the obligation will be met even if one party is unable to fulfill their part. In business situations, this term is commonly associated with loan agreements or bonds issued by more than one party. For instance, if a loan is taken by two people jointly and severally, they are both responsible for the full amount of the debt. It’s not divided, rather, the lender has the right to seek the total repayment from either or both the borrowers, irrespective of their individual share. The term is also used in partnership businesses where each partner can be held responsible for the entire liability of the business. This provides considerable protection to the creditors, as it increases the assurance that they will receive their owed payment, irrespective of the individual circumstances of the debtors.

Examples

1. Co-Signed Loans: This is a common example of jointly and severally. Suppose two individuals, for instance, a parent and their child, together sign a loan agreement for a car. In this situation, both parties are responsible for repayment. The bank can ask either party (or both) to repay the entire sum if one party defaults. Essentially, each party is jointly (together) and severally (individually) liable for repayment of that loan. 2. Partnership Agreements: In some business partnerships, the partners may establish an agreement where they are jointly and severally liable for the business’s debts. This means that if the business defaults on a debt, the creditor can pursue any or all of the partners for full payment. 3. Real Estate Joint Tenancy: In a real estate transaction, a joint tenancy agreement often includes a joint and several liability clause. For example, multiple family members may own a property together. If one cannot fulfill their obligations, such as paying property taxes or being responsible for repairs, the other owners can be held responsible for covering that cost. This joint and severally clause allows any creditor or third-party affiliated with the property’s expenses to seek full payment from any or all of the property’s owners, regardless of each individual’s proportional ownership.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Co-Borrowers
• Liability
• Bankruptcy
• Debentures
• Guarantor

Sources for More Information

• Corporate Finance Institute
• Investopedia
• PwC
• Cornell University