Source: https://finneylawfirm.com/2018/01/30/ohio-commercial-law-obligation-joint-several-instrument-silent-topic/
Timestamp: 2019-07-22 09:46:37
Document Index: 511586620

Matched Legal Cases: ['§ 1', '§ 10', '§ 289', '§ 289', '§ 1303', 'Art. 3', '§ 588']

Ohio Commercial Law: Is an obligation "joint and several" if the instrument is silent on the topic? | Finney Law Firm
Ohio Commercial Law: Is an obligation “joint and several” if the instrument is silent on the topic?
Attorney Julie M. Gugino
“Joint and several liability” is a legal concept that provides that each obligor under a contract is fully liable for the obligations under that contract as to the other party to the contract (i.e, the party to whom the joint obligors are obligated). So, in the instance that two or more guarantors sign a guarantee instrument to a bank for a loan, if they are “joint and severally liable,” it means that each guarantor owes the entire debt to the bank in the event of default. The bank can’t collect twice the guaranteed amount, but it can choose which guarantor from which to obtain payment.
So, the question addressed in this article is “what is the default position as to joint and several liability on a contract if the instrument is silent on the topic?” We address topic this under Ohio and Kentucky law.
The answer: In short, “joint and several” is the default interpretation absent language in the instrument that absolves parties of such liability.
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. Restat 2d of Contracts, § 1 (2nd 1981). Further, where there are more promisors than one in a contract, some or all of them may promise the same performance, whether or not there are also promises of separate performances. Restat 2d of Contracts, § 10 (2nd 1981). Such is the situation when more than one individual signs a guaranty or a promissory note.
The standard modern form to create duties which are both joint and several is “we jointly and severally promise,” but any equivalent words will do as well. In particular, a promise in the first person singular, signed by several persons, creates joint and several duties. Restatement (Second) of Contracts § 289 (1981). What this means is that, generally, under the common law, promises of the same performance create “joint” liability on the part of each promisor unless an intention is manifested to create a “solidary” obligation. Restat 2d of Contracts, § 289 (2nd 1981). However, many states have state specific statutes which have altered or refined this rule.
Common law when contract is silent
In Ohio, an individual signing a note as a co-maker with another individual is jointly and severally liable for the debt, except as otherwise provided in the instrument. Ohio Rev. Code Ann. § 1303.14(A). Star Bank, N.A. v. Jackson, 2000 Ohio App. LEXIS 5567, *1. Under U.C.C. Art. 3, a party signing a promissory note as a co-maker is jointly and severallyliable for the debt. Darrah v. Leakas, 1994 Ohio App. LEXIS 220, *1. As among themselves, co-makers are presumed liable in equal amounts, however, these rights are governed by the particular terms of the contract between the co-makers. Poppa vs. Hilgeford, 1982 Ohio App. LEXIS 13658, *1.
In Kentucky, likewise, in the absence of an express agreement to the contrary, when two or more individuals execute a note, such persons are jointly and severally liable to the holder, even though the instrument contains no such express provision. KRS 355.3-118. Schmuckie v. Alvey, 758 S.W.2d 31, 33-34.
Duty of contribution from co-makers
As between or among themselves, however, in the absence of evidence of a contrary agreement, co-makers are presumed to be liable in equal amounts and a right of contribution, based upon an implied contract of reimbursement and not the instrument, exists between or among them. 11 Am. Jur. 2d, “Bills & Notes” § 588 (1963). Id.
What this means is that if you sign a note or guaranty or other like instrument with another individual, the holder of that note, in their sole discretion, can choose to recover the full amount against you and only you. As between you and your co-maker, depending on your agreement, you likely retain the right to seek contribution from them pro-rata.
For more information on commercial instruments and personal guarantees, contact Julie Gugino at (513) 943-5669.
By Julie M. Gugino