Monday, November 28, 2011

Joint and several liabilities.

If as a buyer you had a supplier parent company and a supplier subsidiary both sign an agreement, what do you have? The answer is you have a situation where each company is liable for their own performance and their own actions, Neither is liable for the other company’s performance or actions. As those two companies are legally separate, you would need to determine if the supplier subsidiary could meet all the obligations under the agreement on their own. If they can’t, you need to make sure that the parent company also is responsible for their performance and actions..

If they parent company was not a party to the agreement, the way you make them responsible to require them to provide a parent or company guarantee (which is discussed in another post).Since they are also a party to the agreement, you can do that by simply including a statement that the supplier parent and supplier subsidiary are jointly and severally liable under the agreement. By including a statement that they are jointly and severally liable what that means is both may be held individually liable for their own performance or actions. It also means that both would also be liable for the performance or actions of the other company. You might want a subsidiary to be severally liable for a parent company so you could bring an action in the location of the subsidiary rather than the location of the parent company. You want the parent company to be responsible for the performance and actions of the subsidiary as the parent company will have greater assets and resources to stand behind the contract commitments.

Do you always need to have the parties be jointly and severally liable? The answer to that would be the same as do you need to require a parent or company guarantee. If you are dealing with a subsidiary of substantial size with substantial assets where they should be reasonable able to cover any potential damages, you probably don’t need it. Many subsidiaries are just sales or sales and service companies with few assets.If you were going to conduct significant business through them you probably should have it.

A key point to remember is just because a company may be a subsidiary or have a supplier’s company name as part of their name, when you buy from that company and not the supplier parent, you do not have any privity of contract with the supplier. You cannot make any contract claims against the supplier unless you either get them to sign the agreement and they agree to be jointly and severally liable, or you get them to provide a parent or company guarantee.

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