Jointly and Severally

Jointly and severally, also referred to as joint and several liability, is a legal term describing the liability of a group of people bound together by an agreement. It is most often seen in the context of a loan.  The phrase is also used in underwriting syndicates to refer to the distinct responsibility of individual companies to sell a particular portion of the unsold new issue.

In a legally binding document, jointly and severally determines a party's level of responsibility. The term is most frequently used in the context of a joint action taken by two or more people, and it is seen on loan documentation and in power of attorney forms. In its purest form, jointly and severally means that all parties to a contract are obligated to perform all of the actions required under the agreement with any proportionality.

For example, if a bank lends $100,000 to two people, jointly and severally, then each person listed on the loan documents is responsible for repaying the total amount of the loan to the bank. For recovery, the bank may choose whom to enforce the loan against in case of default. The person with whom the bank seeks action against will likely have some recourse against the other partner or person named, but only after paying the bank in full. The bank has the option to sue the partner from whom it feels it will have the highest likelihood of full repayment.  

Joint and several liability can also occur because of specific laws. For example, it is common for employers to be responsible for damages caused by their employees. For instance, if a construction worker ruptures a pipe in a home, his employer can be jointly and severally liable for the damages.

The expression "jointly and severally" is also commonly used in the securities industry in the context of the underwriting of a bond or a new stock issue. In such cases, the firm that agrees to sell a portion of the total issue is responsible for that agreed upon portion and the unsold securities.

An underwriter who has jointly and severally agreed to a 30% stake in the sale of a new issue must sell 30% of any remaining unsold portion, even if that underwriter has already sold more than this amount in the initial sale. All members of the syndicate are responsible for any leftover shares.