[Revised 1:50 p.m. EDT, April 26, 2012, to reflect comments by Vance, Mike, and Guest. In the original version, I didn’t explore the procedural side. And further revised 6:00 a.m. EDT, April 30, 2012, to eliminate the words “joint” and “several” from my proposed language.]
In this 2007 post on the AdamsDrafting blog I discuss the phrase joint and several. But it doesn’t begin to adequately address the real issues, which turn out to be messy. It’s time for a serious rethink.
Substantive Implications
The concepts joint and several refer to liability, but the heavyweight authorities refer to such liability as arising out of promises. For example, here’s what Williston on Contracts § 36:1 (4th ed.) says:
Copromisors are liable “jointly” if all of them have promised the entire performance which is the subject of the contract. The effect of a joint obligation is that each joint promisor is liable for the whole performance jointly assumed. It has been said that persons who bind themselves jointly for the performance of one entire duty become sureties for one another for performance of the contract.
…
When a “several” obligation is entered into by two or more parties in one instrument, it is the same as though each has executed separate instruments. Under these circumstances, each party is bound separately for the performance which he or she promises, and is not bound jointly with anyone else.
A “joint and several” contract is a contract with each promisor and a joint contract with all, so that parties having a joint and several obligation are bound jointly as one party, and also severally as separate parties at the same time.
Here’s an example of a joint obligation: A and B shall pay C $100. And here’s an example of several obligations: A shall pay C $50 and B shall pay C $50. You don’t have to use the word joint to create joint obligations or the word several to create several obligations.
As regards a joint and several obligations, Restatement (Second) of Contracts § 289 (1981) says, “The standard modern form to create duties which are both joint and several is ‘We jointly and severally promise,’ but any equivalent words will do as well.”
But making an obligation joint and several doesn’t affect what can be recovered. Regarding joint obligations, the Restatement says, “A and B owe $100 to C jointly, and C obtains a judgment against A and B for $100. Execution may be levied wholly on the property of either A or B, or partially on the property of each.” That wouldn’t change if you made the obligation joint and several.
Furthermore, the Restatement says, “A and B severally promise to pay C the same $100. C may obtain separate judgments against each for $100, and may levy execution under either judgment until $100 is collected.” So C is covered to the same extent, whether the obligation is joint or several.
In my experience, transactional lawyers use the terms joint, several, and joint and several primarily with respect to liability, not obligations. That makes sense—if those terms ultimately relate to liability, why not couch them in those terms, rather than in terms of obligations?
But the substantive redundancy inherent in joint and several and several is equally manifest when you speak in terms of liability, with one important exception: several liability is sometimes given a meaning that’s narrower than the usual meaning, in that it’s used, by means of the phrase several but not joint, to refer to apportioning liability among holders of ownership interests in an entity in proportion to their respective ownership interests. But I think it’s unhelpful to use a general term like several to convey that narrower meaning.
Procedural Implications
The literature acknowledges the substantive irrelevance of any distinction between joint and several: Restatement (Second) of Contracts § 288 says that “the distinction between ‘joint’ and ‘several’ duties is primarily remedial and procedural.”
The procedural distinction is that if A and B are only jointly liable and not severally liable, failure to join both A and B in a suit for recovery might subject you to dismissal (or at least a lengthy argument on the subject). If A and B are severally liable, you can proceed against one without the other.
What Should the Drafter Do?
The labels joint, several, and joint and several are terms of art (or jargon, depending on your perspective), and they’re ill understood. (At least, I didn’t understand them!)
Furthermore, the word joint is subsumed by several—if you’re able to go after each obligor separately, it follows that you can go after them all. So nothing is accomplished by using the phrase joint and several. Sure, joint is redundant rather than pernicious, but why perpetuate the confusion? And I don’t see that anything is gained by clinging to the archaic several.
So although in a previous version of this post I said that I was inclined to keep joint and several, in whatever combination, because getting rid of them would likely “make people nervous,” I’ve now decided that they’re more trouble than they’re worth. Here’s what I’d use instead of joint and several:
Acme may elect to recover from any one or more WidgetCo Entities the full amount of any collective liability of the WidgetCo Entities under this agreement, and Acme may bring a separate action against any one or more WidgetCo Entities with respect to any such liability.
And instead of using several but not joint, here’s how I’d convey that liability is to be shared pro rata among holders of ownership interests and that the claimant may proceed against the holders separately:
Acme may recover from each Shareholder a proportion of any collective liability of the Shareholders under this agreement equal to the proportion of all Shares then outstanding represented by the Shares then owned by that Shareholder. Acme may bring a separate action against any one or more Shareholders with respect to any such liability.
Relevance of Statutes
An added wrinkle is that, as noted in Restatement (Second) of Contracts § 289, “statutes in a sizable number of jurisdictions provide that joint promises have the effect of creating joint and several duties, and statutes in others create a presumption of joint and several duties either in all cases or where all promisors receive a benefit from the consideration.” So those statutes would allow you to capture the concept of several without having to articulate any liability, or any obligations, as several, either by using that word or otherwise.
But drafters may be unwilling to explore the implications of such statutes. And it can sometimes be helpful to make clear to the parties what the law provides. So expressing the several concept in the language I propose above wouldn’t hurt, even if several would be read into a contract by statute.
I can see one area where this might come up (and it probably is your “procedural implication”). If A and B are only jointly liable and not severally liable, failure to join both A and B in a suit for recovery might subject you to dismissal (or at least a lengthy argument) pursuant to FRCP Rules 12(b)(7) and 19. If A and B are severally liable, you can proceed against one without the other.
I agree that the terms, and the concepts, of “joint and several” are redundant, or at least overlapping, in any contract with two obligors. However, when there are three or more, there may be more reason behind them: if A, B and C together owe (for the sake of simplicity) $99, and I collect $33 from C, then I can go after either A or B (if I can’t get both) for the remaining $66. B may or may not have a common-law indemnification claim against A for $33, but that’s not my problem. At least I won’t be potentially held up in collecting from A or B by a claim that I need to join both as necessary parties.
On your alternative phraseology, I have no problem as a matter of meaning, but I suspect that the less radical formulation would appease judges who might wonder why you didn’t use the standard phrase “joint” and/or “several,” thinking that you must have meant something else by not using them. This is one situation where the traditional “magic” words may be so well understood that abandoning them entirely may create more confusion than it avoids
Vance: I believe you’re making the same point as Guest. It appears that statutes have rendered the distinction irrelevant. I guess I should look more closely at what the situation is in the different jurisdictions.
But apart from that, how much of a burden would it be to join all relevant parties?
Finally I disagree that joint and several are “so well understood.” I suspect that a substantial proportion of transactional lawyers would be surprised to learn that they have no substantive implications.
Ken
The burden in joining all relevant problems might be that the court doesn’t have personal jurisdiction over one of the parties.
Another burden in joining all relevant parties: you may be unable to find or serve some of them. Or one or more may be deceased, and the time for filing a claim against the estate may have expired.
When I represent the obligee, what I am really aiming for is something like this:
“Each of the WidgetCo Entities is liable to Acme for all of the obligations of the other WidgetCo entities under this agreement in addition to its own obligations. Acme may elect to recover from any one or more WidgetCo Entities the full amount of the liability of any or all of the WidgetCo Entities under this agreement, in one or more actions, and will not be required to join all of the WidgetCo Entities in an action to be entitled to recover the full amount of the liability owed by any of the WidgetCo Entities hereunder.” (This could continue into guaranty-like language about how a bankruptcy discharge of one WidgetCo Entity won’t extinguish the liability of the others, which is another issue worth considering in addition to the issues of personal jurisdiction and joinder of necessary parties.)
I work with statutorily imposed J&S liability. I think some commenters are reading a limitation into “several” liability that does not exist. It is correct to say that severally liable obligors are each liable for the entire amount. Thus, judgments may be obtained against three severally liable obligors that, if executed upon, could result in a 300% recovery. In practice, a creditor is typically limited to 100% recovery — think unjust enrichment — but that limitation stems from equity rather than some essential quality of “several” liability.
“It is correct to say that severally liable obligors are each liable for the entire amount.”
I understand “several” to mean “proportionately.” Not entirely. It has to be true because Wikipedia says it. https://en.wikipedia.org/wiki/Joint_and_several_liability
I don’t understand your statement: “But I think it’s unhelpful to use a general term like several to convey that narrower meaning.”
I’m newer to contract drafting, but it seems pretty clear to say “Acme may recover from each Shareholder severally.”
Or what about “… the loss shall be born by Indemnitee and Indemnitor severally.”
I’d rather use the plain meaning of one word to convey a principle than a whole paragraph.
At the moment I’m not in a position to reimmerse myself in the mess that is joint and several. But rest assured that there’s nothing “pretty clear” about it, and what you think is “plain meaning” isn’t.
I agree your two sentences make every implication of the law clearer and in ways that are major are vastly better than the tried and true words
But I carefully would like to also show appreciation for joint and several which you wisely say might be ok but redundant of several, but I point out that being paired together helps to focus on this several not the other several
With more thanks to you I conclude if I draft joint and several liability and someone asks to strike joint and leave several liability it’s ok to give in but for the result being me knowing of their unilateral mistake. Such a conundrum
Last you say pro rata or proportional is best to be clear about paired with the several
So several and pro rata would be a good one to use
Your blog I am happy to find
Very deep and true. You are a wonderful writer and analyst thinker and more