Guarantor Contribution Claims And The Meaning Of “Joint And Several Liability”

If by chance you want to learn about contribution claims between guarantors, I recommend reading the September 29, 2008 opinion in Balvich v. Spicer, 2008 Ind. App. LEXIS 2117 (Ind. Ct. App. 2008) (Balvich.pdf).  The Court details Indiana’s laws of contribution, including the applicable statute of limitations.  Although contribution does not directly concern secured lenders, the related concept of joint and several liability does. 

Contribution, generally.  A suit for contribution involves the partial reimbursement of one who has discharged a common liability.  “The doctrine of contribution rests on the principle that where parties stand in equal right, equality of burden becomes equity.”  The right of contribution “operates to make sure those who assume a common burden carry it in equal portions.”  As a basic example, if one of three guarantors paid a lender $100,000 to satisfy a deficiency judgment, then that guarantor could sue the other two guarantors to recover their pro rata portion of the $100,000.

Joint and several liability, defined.  As I read through the Balvich case, it occurred to me that it might be useful to explain what “joint and several” liability means.  If you deal with commercial foreclosures, you may be familiar the “joint and several” terminology in the context of a judgment against multiple guarantors.  When a court enters a money judgment against more than one guarantor, one will see language like:

Lender hereby is granted judgment in its favor and against the defendants, Guarantor I, Guarantor II, and Guarantor III, jointly and severally, with regard to the Guaranties, in the amount of . . ..

There were multiple guarantors in Balvich.  The Court of Appeals, relying upon Indiana Trial Rule 54(E), noted generally that a judgment against two or more persons, jointly and severally, permits “enforcement proceedings jointly or separately against different parties or jointly or separately against their property.”  The all-important Black’s Law Dictionary defines “joint and several liability” as:

A liability is said to be joint and several when the creditor may sue one or more of the parties to such liability separately, or all of them together at his option.  A joint and several . . . [promissory] note is one in which the obligors or makers bind themselves both jointly and individually to the obligee or payee, so that all may be sued together for its enforcement, or the creditor may select one or more as the object of his suit . . ..

Significance of joint and several liability to secured lenders.  In a case of joint and several liability among multiple guarantors, lenders can pick and choose which guarantors to go after for the entire amount owed.  For example, if there are three guarantors, but investigation discloses that two of them are judgment proof, one can opt to chase only the solvent guarantor for all of the unpaid debt.  Plaintiff lenders in Indiana would not be required to sue all three, and lenders would not be limited to a recovery of a specific co-guarantor’s pro rata portion.