We’ve touched on the area of guarantors before – those parties who literally guarantee the performance of some aspect of a legal agreement – and the exposure to liability that a guarantor can have in the event of a default or breach of the agreement. But I don’t think we’ve ever covered the exposure of jointly contracting parties (when there are multiple parties on one side of an agreement) before. I guess I never thought it was necessary to cover off in a blog post; current experience with some of the litigation files I’m hearing about around the office proves me wrong.
This should go without saying, but if you are a joint party to an agreement or a loan or some other legal document, even if the other joint party is the one who takes the entire benefit of the agreement (gets the proceeds of the loan, becomes the tenant in residence, gets the benefits of the contract, etc.), then you are on the hook for any default under that agreement to the full extent permitted by law.
What that means in practice is, if there is some breach by your co- party, then the party on the other side of the agreement can go after you or them alone, and you or them alone can be held responsible for the entirety of the breach – this is what the term joint and several liability refers to; parties are jointly (together) liable, but they are also severally (apart) liable. If your co-party has moved away or is bankrupt, or otherwise unable to satisfy a judgment, it is quite possible that you alone will be sued for a breach. It is then up to you to go after your co-party any restitution that you may be entitled to.
If you have any questions about your exposure when entering into an agreement of any kind, or about the legal effect of the documentation your business uses, please consult a qualified legal professional to discuss.
Scott R. Young