You Could Be Liable if under Contractual Privity
Video Transcript: Can you be held liable for somebody else’s debt? My name is Brian L. Jackson. I am a Tulsa attorney with Wirth Law Office, and today we’re going to talk about whether or not you could be held liable for someone else’s debt.
Typically, the answer to that is no, if you’re not in what’s called contractual privity with the creditor, that is whoever’s owed the money. And what contractual privity means is basically the idea that you and this other person are both parties to a legal contract that imposes certain duties.
So, generally speaking, if you are in contractual privity, then you could be liable. If you were not in contractual privity, generally you were not liable under contract theories. Now, there are a few situations where you could be held to be liable to a creditor of somebody else. One example is what’s called a guarantee or surety contract. Now, what those are basically, if you’ve ever heard of somebody cosigning a loan, that’s essentially a guarantee or surety contract.
The idea is that whoever cosigned is basically promising that if the principle to the contract, that is the person incurring the debt, doesn’t pay that debt, “Well, then I’ll pay it.” That’s a guarantee. That’s a surety contract. Now those, generally speaking, have to be in writing and it has to be explicit. But that’s one example where you could be held liable for somebody else’s debt.
Another situation that could potentially come up is if the debt, if it somehow benefits you as well, then you could run into an equitable doctrine called quantum meruit. What quantum meruit is it’s the idea that there is technically a contract, but you derive some kind of a benefit from this other person, and it wasn’t given with the idea of being free.
So, money needs to be paid to compensate for that benefit. The classic quantum meruit case that you run into in law school is the example of the unconscious person at the car accident scene. They’re treated by medical professionals and there’s a bill incurred. Well, obviously the person was unconscious so they don’t have capacity to contract, but the paramedics and the doctors need to be compensated for their time and efforts. So, equity, that is the court, will find that there is a liability in the absence of a formal contract because a benefit was extended and the person needs to be paid.
Now, where that might come into play, if it’s somebody else’s debt, is if that debt was incurred in such a manner that it benefited you as well. An example might be, say, somebody retains… Well, all right, so say your spouse hires a contractor and they fixed the house up and you never signed the contract. You didn’t sign his surety, you didn’t sign his guarantee, but they performed certain services to improve the value of the house. And let’s assume for the sake of the argument that they don’t have an enforceable property lien against the house, mechanics lien.
They might still have an argument if you’re a co-owner of the property, that you’re indebted to them because the property in which you have an interest goes up in value based on their labors and they’re entitled to payment. And since the debtor died and isn’t available to pay, they might say, “Well, quantum meruit, you got a benefit. You knew this wasn’t free. Pay up.” That’s what quantum meruit is. So, those are some examples of how you could be held to answer for somebody else’s debt.
If you are in a situation where you owe a debt or somebody says you owe a debt, you need good legal counsel. One place you can find good Oklahoma business lawyer is at MakeLawEasy.com.
