Legal Definitions - benefit of division

The benefit of division is a legal right that applies when multiple individuals or entities (known as co-sureties) have jointly guaranteed a debt or obligation. This right allows a co-surety, when asked to pay the debt, to limit their responsibility to only their proportionate share of the total amount. This share is calculated based on the number of other co-sureties who are financially capable of paying their own portion. Essentially, it prevents one solvent co-surety from being forced to cover the entire debt if other co-sureties are also solvent and able to contribute.

• Example 1: Business Startup Loan

  Imagine three friends, Alice, Bob, and Carol, decide to start a small business. To secure a loan for their venture, they all agree to act as co-sureties, meaning they personally guarantee the loan if the business fails to repay it. Unfortunately, the business struggles and defaults on the loan. When the bank seeks repayment, Carol invokes the benefit of division. If Alice and Bob are both financially solvent, Carol can argue that she is only responsible for one-third of the total debt, rather than being held liable for the entire amount if the bank chose to pursue only her.

• Example 2: Commercial Lease Guarantee

  A small restaurant chain wants to open a new location. The landlord requires a personal guarantee from the three principal owners: David, Emily, and Frank. They all sign as co-sureties for the lease payments. After a year, the restaurant goes out of business, defaulting on the lease. If David declares bankruptcy and is unable to pay, but Emily and Frank are financially stable, Emily could invoke the benefit of division. This would mean she is only liable for half of the outstanding debt (her share and Frank's share), as David is no longer a solvent co-surety capable of contributing his portion.

• Example 3: Community Project Bond

  A local non-profit organization needs a performance bond for a community center construction project. Three prominent community members, Grace, Henry, and Irene, agree to act as co-sureties for the bond, guaranteeing the project's completion. The construction company hired by the non-profit defaults on its obligations. When the bond is called upon, it is discovered that Henry has recently faced severe financial difficulties and is insolvent. Grace and Irene, as the remaining solvent co-sureties, can assert the benefit of division, limiting their individual liability to one-half of the bond's value each, rather than being responsible for Henry's share as well.