“Joint”, “several”, “jointly & severally” & “proportional” liability in contracts

By Adv. Elgin Matt John &Milan Kuchaal

Joint and Several Liability
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INTRODUCTION

Contracts are expected to be arrived at under law when contracting parties are in consensus “ad idem” with what they expect from the agreement that is to say that parties have agreed to in both letter and spirit of what has been stated in the agreement. However many times agreement contain such terms and phrases that instead bringing forth clarity only confuse and creates suspicion. Nothing can be more true then the words used to explain or limit liability.

Some of these most commonly used words/phrases are terms like “Joint liability”, “severed liability”, “Jointly and severely”, “Proportional Liability” and “supplementary Liability”. In this article we will try understanding the meaning of these terms/phrases and the meaning associated with them in law.

1.        At the outset we will try to understand the meaning of the term “Joint and Several” liability. The genesis of this is from the contractual relations established when joint promises are made by the set of promisors to one or more promisee. The principle being that the liability to perform the promise is on all the promisors jointly towards one and all promisee. That is to say that all the promisors are jointly liable to perform the promise towards all the promisee. Taking it further even if the promisee files a case against one or more of the promisors the other promisors whether a party to the case or not will still be liable to contribute in their liability towards the promisee and the court can order that they be made a party. That is ideally all the promisors(in plural sense) remain liable to all the promisee Jointly. The converse will be true if of these joint liability there are separate promises made by some of the promisor to the promisee that is their liability would stand severed from the remaining set of promisors. That is Severable Liabilities from the main or primary joint liability of all the other promisors.

2.         As the promisors (please understand this in plural—further for clarity promisor here means the person making the promise while promisee being one to whom the promise is being made) are jointly liable. This means that each of the promisors also become liable in proportion of the benefits they have received from the promisees when the transaction was effected. Therefore, in the case of claims filed by promisee against all the promisors and if due to some reasons one of the promisor is unable to pay his share of the claim liability to the promisee and instead the others are obligated to pay or perform on behalf of the delinquent promisor. The remaining promisors can sue for recoveries of sums paid by them on behalf of the delinquent promisor. While dealing with such situations the courts have held that the entitlement of benefit of compensation must be divided in “Proportion” of the benefit individually received by each promisor under the original contract.  As one can see the benefit received from promisee is also the liability that individual promisors owe to the promisee. Therefore it follows that the “Proportion” of benefit received by each of the joint promisors is also their “Proportionate Liability”. So for eg if A,B & C are joint promisors to E (the promisee) and as per the agreement the money A,B&C receive or use that comes from E is in proportion of 3:2:1. Then when E claims for refund for non-delivery of services jointly from the A,B&C and where C is unable to pay his part and his share to E and instead the same is paid by A & B.  This will allow A&B to claim the amounts they paid on behalf of C to E from C in a separate suit. When C does pay off A&B after they fiel a suit for recovery  it will be in Proportion of 3:2 between A&B. This liability of repayment from A,B &C to E is proportional Liability and from C to A & B is proportional contribution of C to A&B.

3.         “Jointly and Severally”

“joint and several liability is “liability that may be apportioned either among two or more parties or to only a few select members of the group at the adversaries discretion. Thus each liable party is individually responsible for the entire obligation, but a paying party may have a right of contribution and indemnity from non paying parties.” (page 933 Blacks Law Dictionary(8th Edition)

As this term is associated with issues arising from joint promisors and their promises  made to one or more promisee these terms come in discussion in section 42-44 of the Indian Contract Act 1872.

Sec 42 Devolution of joint liabilities.—When two or more persons have made a joint promise, then, unless a contrary intention appears by the contract, all such persons, during their joint lives, and, after the death of any of them, his representative jointly with the survivor or survivors, and, after the death of the last survivor, the representatives of all jointly, must fulfil the promise. 

The contents of this Section are self-explanatory. This section suggests, that the joint promisors are jointly liable to the promisee, i.e all of them are jointly liable towards the performance of the promise. This liability doesnot end even on the death of any of the joint promisors as his or her legal heirs or legal representatives continue to be liable to the priomisee along with the other surviving joint promisors or their legal heirs.  However, if there is a contract to the contrary then this joint liability will stand severed. That is if some additional promises have been made apart from the ones made jointly by all those separate promisees will be the “several liability” that will not bind the remaining promisors.

The section therefore talks of joint Liability as well as liability that can be “severed”.

4.         Sec 43 Any one of joint promisors may be compelled to perform.—

When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any one or more of such joint promisors to perform the whole of the promise.

Each promisor may compel contribution.—Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract.

If any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares.

Explanation.—Nothing in this section shall prevent a surety from recovering, from his principal, payments made by the surety on behalf of the principal, or entitle the principal to recover anything from the surety on account of payment made by the principal

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5.        The Section clarifies that a promisee is entitled to either sue the promisor jointly or individually to perform the terms of the agreement. Therefore, the promisors will be liable to perform the terms of the contract jointly, irrespective, of whether they have been sued jointly or individually. Therefore Dhanki Mahajan v. Rana Chandubha Vakhatsing , AIR 1969 SC 69 the Supreme Court has hled that  where Debts are jointly incurred each promisee is liable for the whole amount. It has also been held that neither the minority (Dasarath Gayen Vs. SatyaNarayan Singh AIR 1963 Cal 325 )  nor insolvency of one of the joint promisor affects the liability of the others (BR Nagendra Iyer Vs. RV Subburamachari AIR 1935 Mad 1055). In Dasrath Gayen case the court observed asunder:

“13. Section 43 of the Indian Contract Act provides that when two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any one or more of such joint promisors to perform the whole of the promise. As between the appellant and the first defendant therefore, the argument based on the minority of others cannot prejudice this claim for specific performance. Even under Section 16 of the Specific Relief Act when a part of a contract which, taken by itself, can and ought to be specifically performed stands on a separate and independent footing from another part of the same contract which cannot be specifically performed, the court may direct specific performance of the former part. Therefore, when the contract is several and not merely Joint and when the fact that the other part of the contract which is severable is between persons who are minors, the minority of others cannot be a bar to the claim for specific performance between the major parties”.

6.        A slightly different view was taken in Kedar Nath v L Manak Chand(AIR 1961 Punj 555) In this case the plaintiff, who was an advocate, brought a suit for the recovery of the sum 1,700/-against Ganesh Dass and Sanwal Dass proprieters. The amount claimed was in respect of professional fees which remained unpaid by the defendants who had engaged the plaintiff as their counsel in the year 1941. The present suit was instituted in 1949-1950. Ganesh Dass died in 1952. An application to bring his legal representatives on record was made after the period of limitation. Sanwal Dass also died during the pendency of the suit. The question before the court was whether only Sanwal Dass or his legal representatives could be held liable without bringing Ganesh Dass to the suit. The court referring to section 43 and section 44 of the Indian contract, 1872 act held that Ganesh Dass and Sanwall Dass were jointly and severally liable. The plaintiff demanded only half the fee against the legal representatives of Sanwal Dass.Denying the appeal the court held that, the appellant can not prosecute an appeal only against Sanwal Dass having renounced his claim against Ganesh Das. Thus the principle applied in this case was that when a suit against a number of joint promisors has been dismissed, the plaintiff cannot prosecute an appeal against only some of them, renouncing his claim against the rest. The principle of Joint liability was re-ierated.

“It was held that “when a suit against a number of joint promisors or joint contractors has been dismissed, the plaintiff cannot prosecute an appeal against some only of them, renouncing his claim against the rest or their legal representatives”. In the view of the Division Bench “such an appeal cannot be sustained either on the footing of the promisee’s right to release any of the Promisors under Section 44 or of a joint and several liability under Section 43, because, if the appeal is allowed, the respondents on record cannot by reason of the decree of the trial court, which is conclusive in favour of the respondents not impleaded, sue the latter for contribution”. Said the court.

7.        The promisee has also been given the option of initially suing any one of the Joint Promisors and later take the assistance of the court to implead the others. This also suggests that suing any one of the joint promisor means that all others will also become liable because of principle of joint and several liability.

Therefore under Order 1 Rule 6 of The Civil Procedure Code 1908

“Rule 6. Joinder of parties liable on same contract

The plaintiff may, at his option, join as parties to the same suit all or any of the persons severally, or jointly and severally, liable on any one contract, including parties to bills of exchange, hundis and promissory notes.”

8.        The option has been given to the promisee to file his claim either against one of the joint promisor or if need be later apply to the court to implead another of the joint promisor to the suit.

Therefore in the case of Shankerlal v Motilal AIR 1957 Raj 267 the court held:

“17. The underlying reason is that there are really two kinds of liabilities which must be kept distinct from each other. The first is a liability between the decree-holder and the judgment-debtors (whose liability is joint and several). The second is a collateral liability between the judgment-debtors themselves. These two liabilities are essentially independent of each other and the mere circumstance that the decree-holder has absolved some of the judgment-debtors’ from the performance of the promise or that the liability of some of them towards the decree-holder is barred by time or is otherwise unenforceable cannot have the effect of affecting their liability between themselves on the principle of contribution which is recognised in sections 42 to 44 of the Contract Act. This liability to contribute equally on the part of the co-promisors towards the performance of a joint and several promise appears to be primarily based upon an implied contract between the judgment-debtors themselves and although it is subject to contract to the contrary between the copromisors themselves, the promisee cannot by his unilateral act do anything to destroy it.”

The court therefore allowed inclusion of additional parties to the suit. Similarly in the case of Jainarain Ram Lundia v Surajmull Sagarmull AIR 1949 FC 211  the court held asunder:

“19. The third point raised by the appellants does not appear to us to be at all sound. The argument is that the contract being joint and indivisible, it was not open to the plaintiffs to give up one of the defendants and proceed against the other two. In our opinion, Section 48 of the Indian Contract Act is a complete answer to this contention. Unlike English law the Indian law makes all joint liability, joint and several, in the absence of any agreement to the contrary. It is, therefore, open to the promisee to sue any one or some of the joint promisors and it is no defence to such a suit that all the promisors must have been made parties. As the plaintiffs in this case prayed ultimately for specific performance of a part of the contract in the manner contemplated by Section 15 of the Specific Relief Act and expressed their readiness to pay the entire consideration for 350 shares, the appellants are not prejudiced in any way.”

9.        As suit filed against one of the joint promisor binds and obligates all the other joint promisors. In the case of Baria Guman Hamji and Anr. Vs. Rajanikant [(1992) 1 GLR 7]  J. Shah, the family of a deceased labourer brought a suit against the employer, as the labourer had died due to injuries sustained in the course of employment. It was submitted by the plaintiff party that, the deceased was their only son and bread winner for the family and hence demanded compensation. The defendant contended that since he was in a partnership, with another company he could not be held liable. The court opined, that such a partnership fell under the purview of the section 43 of the Indian Contract Act, 1872. Both the partners were joint and severally liable being “agents” of the partnership firm and the plaintiff party could just take action against the defendant who was one of the partners in this case without adding the defendants who were the other partner to the suit.

“12. Apart from that, in so far as third party is concerned, a partner is always an agent of the firm, for the purpose of business of the firm, as provided in Section 18 of the Indian Partnership Act, 1932. Of course, there is evidence to show that the opponent, Rajanikant J. Shah, was one of the partners of the firm M/s. Rajanikant J. Shah. So factually he was working as an agent of the firm. Again, in view of the provisions of Section 18 of the Indian Partnership Act, 1932, a ‘partner’ is an ‘agent’ of the firm for the purpose of business of the firm, and even on the analogy of the provisions of Section 43 of the Indian Contract Act, 1872, a partner is liable and, therefore, application for compensation under Section 3 of the Act was maintainable. In Parameswar Lal Shroff v. Syam Sunder Baity, retired in 1954 (1) LU 885, the Calcutta High Court held that an application for compensation by a workman, employed by a partnership firm, against one of the partners, is legally maintainable.”

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“CONTRIBUTION ” under Sec 43 of The Indian Contract Act

10.      The principle of contribution is suggested in the section itself.

“Each promisor may compel contribution.—Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract.

If any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares.

11.      The Section highlights the other aspect of joint liability. This liability is principally associated with the liability existing between the joint promisor per say and between the promisor and promisee.

12.      This part of section relies on 2 founding concepts : Firstly it makes it obligatory on each of the joint promisor to perform the promise thereby making them severally liable to the promisee and in order to achive this the section allows the promisors who are willing to perform the promise the right to compel the other joint promisors to perform their part of the promise that might have been mutually agreed to amongst the joint promisors. This section highlights the fact that the level and extent of liability in a promise amongst the joint promisor can vary depending upon the terms of the agreement amongst themselves.

Secondly  the principle arises from the first that if one of the joint promisors fails to perform his set of liability and instead it results in other joint promisors performing on his behalf. Then those who performed the part of the joint promisor who failed to perform his lability (or in other words his part of the contribution) can recover the same from the delinquent promisor.

13.      As regards the first principle there is no confusion or clarification required. However, time and again issues arise when the benefits derived from the promisee against the transaction has not been proportionately received by all the promisors equally and a situation arises where one of the joint promisor fails to perform his part of liability and other joint promisors fill in to perform on his behalf and later they bring a suit against the delinquent promisor and an issue arises as to how when they have to be compensated should the proceeds received from the delinquent promisor be divided, amongst the remaining joint promisor. While dealing with such situations the courts have held that the entitlement of benefit of compensation must be divided in “Proportion” of the benefit individually received by each promisor under the original contract.  As one can see the benefit received from promisee is also the liability that individual promisors owe to the promisee. Therefore it follows that the “Proportion” of benefit received by each of the joint promisors is also their “Proportionate Liability”. So for eg if A,B & C are joint promisors to E (the promisee) and as per the agreement the money A,B&C receive or use that comes from E is in proportion of 3:2:1. Then when E claims for refund for non-delivery of services jointly from the A,B&C and where C is unable to pay his part and his share to E and instead the same is paid by A & B.  This will allow A&B to claim the amounts they paid on behalf of C to E from C in a separate suit. When C does pay off A&B after they fiel a suit for recovery  it will be in Proportion of 3:2 between A&B. This liability of repayment from A,B &C to E is proportional Liability and from C to A & B is proportional contribution of C to A&B.

14.      Therefore in the case of Padmanabha Kakkothaya And Ors. vs Keshava Derinjithaya And Anr. on AIR 1951 Mad 239 the court held

“7. From these authorities it seems clear that if one of the persons liable to contribute did not or could not pay his proportion that amount has to be divided between other contributories only in the proportion of the benefits which each one of them has received at the time of the original contract. Section 43, Contract Act did not envisage such a contingency, It seems to be a causus omissus. It only speaks of the liability of all the promisors to the original promisee and inter se the right of any one of the promisors to claim the excess amount from the other promisors; but, where, as in this case one of the promisors was not able to pay or nothing could be obtained from him how is the proportionate liability to be divided among the other promisors is not considered in this section. The indication contained in the decision of the Irish Court of Appeal as well as in English cases which have found favour with the learned Judges in Abraham Servai v. Ra-phial Muthirian, 89 Mad. 288 : (A. I. R. (2) 1915 Mad. 675) is to the effect that in equity such amount must be divided between the other co-promisors only in proportion to the original benefit which one of them had received.”

In the above paras we have discussed the ideas of  “ Joint”, “several” , “joint and several” as well as “Proportionate Liability” now we will attempt to understand the concept of “Supplementary Liability” .

15.      Supplementary Liability

The phrase “Supplementary Liability” it appears to have been derived from Insurance contracts. Especially when additional coverage is being taken apart from the standard provision of an insurance coverage. For example in continental Europe Car Insurance is not inclusive of 3rd party coverage. In cases where the “Insured” seeks an extension of the coverage for 3rd party cars arising from the accident the assured enters into a supplementary agreement for additional coverage. As regards the insurance company this extension of coverage is what is referred to as “supplementary liability” . There is also no mention of the terms in The General Clauses Act 1896 suggesting that the term doesnot have legal origins.

16.      The term therefore is of European origin and has been adopted in formulation of contracts in India as a term ordinarily understood in the Oxford English dictionary 2020 which defines “Supplementary” as “ provided in addition to something else in order to improve or complete it”.

17.      As the meaning goes the mention of the terms “Supplementary” should be understood to mean something that is in addition to and goes beyond the term of the agreement. That is it in an addition to the existing in the contract but nevertheless being agreed to between the parties.

“Supplementary Liability” therefore should be understood to mean additional liability that the parties are tending or agreeing to which falls beyond the term of the contract that create the liability in the first place.

©Elgin Matt John 2020 of M/s Elgin Matt John & Associates