The guarantee is regarded as the most common instrument used in the business of commercial banks. For a variety of reasons, a guarantor may guarantee financial or operational performance. Financial guarantees, performance guarantees, indemnifications, and indirect guarantees of another entity's debt are all common types of guarantees. When two or more people agree to pay a debt, this is known as joint and several liability (or similar obligation). Unrelated reporting entities and reporting entities under shared control, may be jointly and severally liable for an obligation.
1. Joint and Several Guarantee
It is a frequent misperception that the debtors' obligations are shared in a joint liability situation, and the creditor can only recover in equal proportions from each debtor. The term "joint liability" simply means that two or more people are making the same commitment or obligation at the same time.
However, "Joint and several responsibility", differs from a joint promise. When two or more people in the same instrument jointly agree to do the same thing and separately promise to do the same thing, this is known as joint and several liability as stated in Re Vallibhai Adamji 1933 Indlaw MUM 179, AIR 1933 BOM 407. It is important to understand the overall concept of the joint, several, and joint & several guarantee as there is a great distinction among those three. We shall look at the effect of each type of liability.
2. Effect of Joint Liability in Contract
Joint liability arises when two or more people undertake to do the same thing for another person in a contract or trust deed. Joint responsibility is unusual as it rarely survives the death of one of the joint promisors. If the parties are jointly liable, they are each completely responsible for fulfilling the relevant obligation.
3. Effect of Several Liability in Contract
When two or more people make separate promises to one another, they create several liability (the word several is an ancient synonym for separate) With multiple responsibility, each party is only responsible for the duties that they have agreed to. The liability does not pass to other parties if a party is unable to meet his obligations.
4. Effect of Joint and Several Liability in Contract
Joint and several liability is a mix of joint and several liability. The claimant has the right to enforce the applicable contractual obligation against either of the jointly liable parties in its entirety. When a co-obligor dies, the claimant has superior enforcement powers than when culpability is joint.
5. Effect of Joint and Several Liability in Tort
In tort, if A and B act independently to cause the same damage to C, joint liability may arise (for this reason, A may be the contract breacher and B may be the tortfeasor)3. In this case, C has the right to sue all or any of them for compensation for all their losses. If C sues A instead of B, then A can seek B's contribution for its related responsibilities. Where two or more persons assume responsibility for another person, they may assume joint liability.
Difference Between “Joint” and “Several” in a Guarantee
A joint guarantee means that the signatories as a group are jointly and severally liable for the borrower's debts. If one guarantor fails to pay, the others must meet their obligation to repay that debt in full. The words "jointly" and "severally" refer to the nature of the guarantors' liability under the guarantee.4 A several guarantee means that the signatories, separately or individually, have promised to guarantee the repayment of the borrower's debts. Sometimes these individual pledges are just to repay a percentage or proportion of the borrower's debt. However, the more common individual pledge is to repay the borrower's debt in full or at 100%, thus, breaking the traditional distinction between joint and several funds.
Most guarantees in the market today are drafted as "joint guarantees" This means that each guarantor assumes joint and several liability (as a group member) and personal liability (individually) to the lender. Lenders seeking to demand and enforce joint guarantees can choose to sue all guarantors in a joint lawsuit. However, lenders may choose not to seek specific guarantors who are known to be insolvent or proof of judgment in order to save costs, and instead choose to deal only with guarantors who are known to have available assets. A guarantor who pays a lender under a joint guarantee may at any time seek contribution from another guarantor in a separate proceeding.
The most recent case of Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian Nagappan5 has discussed this topic in which the Federal Court, after clarifying the concepts of joint, several and joint & several guarantee, found that Section 44(1) of the Contracts Act 1950 governs a joint liability situation in Malaysia. Judgement creditors may proceed against one or more of the joint promisors to have them perform the entire promise unless the contract expressly states otherwise. As a result, as long as a judgement debt is unpaid, a judgement creditor is authorised to take action against one or both judgement debtors to satisfy the entire sum. By virtue of the statutory law provided in Section 44 of the Contracts Act 1950, it is reasonable to conclude that joint and several liability prevails in any contracts or agreement unless a judgment or order stipulates otherwise.
Joint and several liability is a system that helps protect plaintiffs if one or more fraudsters are unable to pay the plaintiff's damages. However, this can lead to unbalanced and unexpected results where certain attempts were made to improve this by changing the law. Joint contracts impose full accountability on each promiser's obligations, unless explicitly stated otherwise in the contract. It adopts court analysis and concludes that collective liability supersedes a contract or agreement is rational. Nevertheless, it adopts statutory law provided for in Section 44 of the Contract Act of 1950.
On the same note, joint and several liability serves as the obligation of two or more partners to be responsible for paying off debt or fulfilling their responsibilities. Joint and several liability allows parties to share the risks associated with assuming debt and protect themselves in the event of a proceeding. Whether this concept serves its adequate purpose solely relies on a case to case basis