Include joint and several liability clauses in your contracts to maximize your ability to collect monies owed. So, stack the decks in your favor by going after the customer with deep pockets. Rather than chasing customers with little or no cash flow, or several customers, you will want to include a joint and several liability clause in your contract. By doing so you will strengthen your ability to pursue the customer with deeper pockets. And they would offer the greater capability to pay you monies owed.
What is joint and several liability?
Joint and several liability exists when two or more people or entities are liable with respect to the same liability.
Hence, you – the creditor – have the right to claim the execution of the obligation from any co-debtor. This relieves you from pursuing all the co-debtors. Among themselves, co-debtors are severally bound, held separately. Especially relevant is that under joint and several liability, you may pursue an obligation against any one party as if they were jointly liable. It then becomes the responsibility of the defendants to sort out their respective proportions of liability and payment. This means that if the claimant pursues one defendant and receives payment, it is the defendant’s responsibility to pursue the other debtors for a contribution to their share of the liability.
Joint and several liability allows you to purse one or more parties for the entire amount due you.
What are the benefits of including a joint and several liability clause in your contract?
There are several benefits that as a creditor you will enjoy when you include a joint and several liability clause in your contract. To name a few are:
- More economical. When pursuing debt collection through a court action, rather than required to name all the responsible parties in your contract, you can pursue one. This reduces the out-of-pocket costs to proceed.
- Greater chance of recovery. This allows you to pursue the customer with the most assets. Thereby improving your chance of recovery.
- Less confusing for the court. Should several parties fight it out, the court often finds an issue that would prevent you from winning without a trial. With fewer parties, the dispute has a more narrow scope. This offers a greater chance of moving the case towards judgment.
How does joint and several liability work?
If you contract with multiple parties and provide in the contract that each is responsible for a specific amount or different percentage. By including a joint and several liability clause, you can pursue any of the parties for the full amount. It would be up to the parties themselves to determine who owes what, if they wish.
Include joint and several liability as a clause in your contract for this option to be available to you as a creditor. To be enforceable, the agreement for the parties to be jointly and severally liable must be in your underlying agreement signed by the customers/clients. If not, the law assumes that each party is only responsible for their portion of the debt.
Contact us to review your contracts. We’ll help you to establish contracts optimized to improve collection outcomes.