A joint guarantee means the signatories are jointly liable as a group for the borrower's indebtedness. If one guarantor does not pay, the others are on the hook to fulfill the group's obligation to repay the full amount of that indebtedness.
If the limited guaranties provide for “joint and several” liability of $500,000, this means that only the total amount of $500,000 is guarantied by the two guarantors regardless of which one repays it or in what proportions.
Unlike a co-signer, a guarantor has no claim to the asset purchased by the borrower. If the borrower defaults on their loan, then the guarantor is liable for the outstanding obligation, which they must meet, otherwise, legal action may be brought against them.
Guarantees are often embedded in purchase or sales agreements, service contracts, joint venture agreements, or other commercial arrangements. A joint and several liability is an obligation of several parties that is enforceable, for the full amount of the obligation, against any one of the parties.
In law, joint and several liability makes all parties in a lawsuit responsible for damages up to the entire amount awarded. That is, if one party is unable to pay, then the others named must pay more than their share until their joint financial obligation has been met.
Joint and Several Liability arises when two or more people agree to pay a debt (or similar obligation). It's a joint promise that, if and when the need arises, you and your partner agree to pay off the debt together. At the same time, each person makes a separate promise to pay the whole debt on his or her own.
Limited guarantees set a specific cap on the guarantor's liability. This means that the guarantor is only responsible for a predetermined amount of the outstanding debt. While limited personal guarantees provide some protection by capping the liability, the guarantor is still on the hook for the specified amount.
Section 128 of the Indian Contract Act, 1872, establishes that the liability of a surety (guarantor) is co-extensive with that of the principal debtor unless otherwise stipulated in the contract. This means that the surety can be held liable for the debt to the same extent as the principal debtor.
A guarantor is someone who agrees to take on the financial responsibility if the renter is unable to meet their rental obligations. This includes paying the rent and covering any damages that might occur.
Joint tenancies
In this situation, as a guarantor, you are likely to be responsible for whatever any of the joint tenants owe the landlord, not just what the tenant you are helping may owe. You may also be responsible for any damage caused by other tenants, not just the one you're wanting to help.
Where this Guarantee is given by more than one person, the obligations on the part of the Guarantor contained in this Guarantee take effect as joint and several obligations and references to the Guarantor take effect as references to those persons or any of them.
If there is no certificate, all partners are jointly and severally liable. If the certificate is valid, only the general partners are jointly and severally liable. There must be a written agreement including the value of each partner's contribution, when contributions will be made, and the events causing dissolution.
Unless a guarantee is capped the potential liability of a guarantor is unlimited. Best practice is to always insist on the maximum liability under the guarantee being capped at a dollar amount.
The guarantor's liability under a guarantee is a secondary liability, as the guarantor is not liable unless and until the principal obligor fails to perform its own obligation to the third party (the primary liability).
A guarantor can be used for multiple tenants, however, a tenant cannot have more than one guarantor.
Further as per Section 134 of the Indian Contract Act, 1872, a guarantor is discharged of its liability towards the creditor only if the creditor on its own instance discharges the principal debtor through voluntary act of the creditor and not due to operation of law.”
If the borrower doesn't repay the loan you will be legally responsible for paying the debt. Apart from the financial burden, these situations can sometimes end friendships or cause family feuds. Both the borrower and the guarantor should think seriously about whether they can commit to maintaining the payments.
Legal Action: If the personal guarantor fails to respond or refuses to comply with the demand letter, the creditor may pursue legal action. This could involve filing a lawsuit to obtain a court judgment against the guarantor.
The Supreme Court emphasized the co-extensive liability of the surety (guarantor) and the principal debtor, as laid down under section 128 of ICA. The creditor has the right to proceed against either or both parties.
Depending on the terms of the tenancy agreement and guarantee provisions, the guarantor could also be responsible for paying for any damage caused to the property and other costs that the tenancy agreement may make the tenant liable for, such as the landlord's legal fees to recover possession of the property.
Difference Between “Joint” and “Several” in a Guarantee
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.
For example, suppose that A, B, and C negligently injure V. V successfully sues A, B, and C, for $1,000,000. If the court used a joint and several liability system, V could demand that A pay V the full $1,000,000. A could then demand contribution from B and C.
If an agreement states that you and your roommate(s) are "jointly and severally liable," it's confirming that you're individually and collectively liable for the entire rent. In the event that your roommate(s) fail(s) to pay, you can be held responsible for his/her portion of the rent.
Example 1: "Party A and Party B hereby agree to be jointly and severally liable for any and all debts, liabilities, and obligations arising from or relating to the performance of this Agreement.