Legal regulations on joint and several liability in contracts

Joint and several liability in contracts serves as a mechanism to protect legitimate interests and reduce disputes, requiring a clear understanding of the law and professional legal advice to mitigate potential risks.

I. The impact of joint and several liability in contracts in the current context

In the context of increasingly diverse civil and commercial transactions, many contracts involve multiple parties jointly taking obligations. In such cases, joint and several liability plays a crucial role in ensuring that obligations are executed fully and in a timely manner.

Such a mechanism allows the entitled party to require any one of the obligors within the group to execute the entire obligation, thereby limiting delays, evasion, or the shifting of responsibility among parties. At the same time, it enhances transparency and fairness while strengthening mutual trust among the parties. In practice, joint and several liability is an effective legal instrument for maintaining stability in civil and commercial relationships, minimizing dispute risks, and safeguarding the lawful rights and interests of contractual parties.

II. What is joint and several liability in contracts?

To fully understand the role and impact of joint and several liability, it is first necessary to clarify the concept and legal nature of such a mechanism in contractual relations, as follows:

1. Definition of joint and several liability in contracts

Clause 1, Article 288 of the Civil Code 2015 provides that a joint and several obligation is an obligation to be executed by multiple persons, and the entitled party may request any one of the obligors to execute the entire obligation.

Accordingly, joint and several liability in a contract may be understood as a case where multiple persons are jointly required to execute a common obligation, and the entitled party may demand any one of them to fully execute the obligation in accordance with the contractual agreement.

2. Why joint and several liability is necessary in contracts

The application of joint and several liability in contracts is necessary because it helps secure the rights and interests of the entitled party, preventing obligations from being left unfulfilled or unduly prolonged. At the same time, it creates a strong binding effect among the participating parties, compelling them to maintain compliance in fulfilling their commitments.

In summary, it is one of the essential legal tools for maintaining safety, transparency, and stability in civil and commercial relationships.

III. Legal provisions related to joint and several liability in contracts

Current laws provide relatively specific regulations on joint and several liability in contracts, forming a clear legal basis for determining the rights and obligations of the parties.

1. When is joint and several liability in contracts applicable?

Joint and several liability applies where the contracting parties voluntarily agree on joint and several liability and expressly stipulate it in the contract, or where such liability is prescribed by law.

For example, where multiple persons jointly act as guarantors for an obligation, they must perform the guarantee on a joint and several basis, unless otherwise agreed or unless the law provides for separate guarantees by portions (Article 338 of the Civil Code 2015).

2. In which cases is joint and several liability in contracts not applicable?

Joint and several liability does not apply in the following cases:

• Where the contract does not expressly provide for joint and several liability and there is no statutory provision, each party shall take separate liability. For example, A and B jointly enter into a loan agreement with C, but the contract does not state that A and B shall be jointly and severally liable for repayment. In such a case, A and B are only required to repay their respective portions, and C may not require one party to repay the entire debt on behalf of the other.
• Where the contract is declared invalid according to Articles 407 and 408 of the Civil Code 2015. For example, where a contract is entered into with unlawful subject matter (such as trading in prohibited goods) or fails to meet the validity conditions prescribed in Point c, Clause 1, Article 117 of the Civil Code 2015. In such cases, the legal consequences of an invalid contract do not arise, alter, or terminate the civil rights and obligations of the parties from the time the transaction is established (Clause 1, Article 131 of the Civil Code 2015).

Accordingly, where one of the above circumstances exists, joint and several liability in contracts shall not apply.

3. How is joint and several liability handled when one party breaches the contract?

Pursuant to Clause 1, Article 288 of the Civil Code 2015: A joint and several obligation is an obligation to be executed by multiple persons, and the entitled party may request any one of the obligors to execute the entire obligation.

Where one party breaches the contract, the entitled party may require any jointly liable party to fully execute the obligation. After execution, such a party has the right to demand reimbursement from the other breaching parties for their respective portions of the obligation.

4. Can joint and several liability be regulated differently across various sectors?

In practice, depending on the nature of the contract (e.g., loan agreements, construction contracts, contracts for the sale of goods), joint and several liability may be governed differently under specialized laws, provided that such regulations do not contravene the Civil Code. For example, under a loan agreement, borrowers may be jointly and severally liable for repayment of the entire loan amount to the lender; under a construction contract, the main contractor and subcontractors may jointly and severally take liability for construction quality and project progress.

In summary, joint and several liability may be flexibly applied to different types of contracts but must always remain within the legal framework to ensure fairness and transparency.

IV. Questions regarding joint and several liability in contracts

In the application of joint and several liability, parties often encounter concerns regarding the identification of liable persons, the scope of impact, and methods of dispute resolution. Below are some common questions and corresponding explanations:

1. Where multiple parties sign a contract, who is the principal jointly liable party?

In joint and several relationships, the law does not designate a principal liable party. All parties subject to the joint and several obligations take equal liability, meaning that the entitled party may require any one of them to execute the entire obligation undertaken (Clause 1, Article 288 of the Civil Code 2015). After execution, such a party has the right to request the remaining parties to reimburse their respective portions (Clause 2, Article 288 of the Civil Code 2015).

Accordingly, no party is considered the principal jointly liable party; rather, all contracting parties share the obligation equally.

2. Does joint and several liability in contracts affect the interests of the parties?

Joint and several liability both strengthens the binding nature of obligations and serves as a mechanism to secure the interests of the entitled party.

• For the entitled party: Its interests are better protected, and the risk arising from one party’s insolvency is reduced.
• For the obligors: It promotes cooperation and shared responsibility while reducing the risk of one party shifting obligations to another. At the same time, obligors take a higher risk, as they may be required to execute the portion of the obligation attributable to another party.

Thus, joint and several liability both protects the interests of the entitled party and maintains fairness and balance among the obligors.

3. Can joint and several liability in contracts be stipulated in writing?

Pursuant to Clause 1, Article 119 of the Civil Code 2015: Civil transactions may be expressed verbally, in writing, or by specific conduct.

Accordingly, joint and several liability may and should be recorded in writing. Clearly stipulating such liability in the contract helps accurately determine the scope of obligations, the manner of execution, and the responsibilities of each party. It not only provides a solid legal basis in cases of disputes but also gives the parties greater assurance during contract execution. 

4. How is joint and several liability handled if one party becomes bankrupt?

Where one of the parties subject to a joint and several obligations becomes bankrupt, the rights of the entitled party remain protected by law. Clause 1, Article 288 of the Civil Code 2015 provides that a joint and several obligation is an obligation to be executed by multiple persons, and the entitled party may request any one of the obligors to execute the entire obligation.

Accordingly, the entitled party may require the remaining parties in the joint and several relationships to execute the entire obligation as undertaken, in substitution for the portion of the obligation that the bankrupt party is unable to execute. 

5. Is it possible to initiate legal proceedings for damages based on joint and several liability in contracts?

Pursuant to Article 186 of the Civil Procedure Code 2015: Agencies, organizations, and individuals have the right to institute legal proceedings, either directly or through their lawful representatives (hereinafter collectively referred to as ‘plaintiffs’), before a competent court to request the protection of their lawful rights and interests.

In a case of a dispute concerning joint and several obligations in a contract, the entitled party may initiate legal proceedings against any of the jointly liable obligors before the court to demand execution of the obligation or compensation for damages. A party that has executed the obligation on behalf of another may also initiate legal proceedings to recover the corresponding portion of the obligation.

Initiating claims for damages in disputes involving joint and several liability not only protects the rights of the entitled party but also maintains fairness among the obligors.

V. Are you looking for a reputable law firm to advise on joint and several liability in contracts?

The above is NPLaw’s article on joint and several liability in contracts. With a team of experienced lawyers and legal specialists, NPLaw provides reputable and professional legal services, ensuring the best protection of the lawful rights and interests of clients. Should you require legal assistance, you may contact NPLaw for consultation and support.