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Contribution is an important term in the fields of business and tort law

Tort Law

In the field of tort law, contribution refers to an action a defendant may bring in a joint and several liability jurisdiction to recover for damages they paid out but did not cause. In a jurisdiction that follows joint and several liability, a negligent defendant is liable to pay damages for all harm suffered by the plaintiff, even if the negligence of other parties caused some of that harm.

After a plaintiff collects from a jointly and severally liable defendant, that defendant may initiate a separate lawsuit seeking contribution against the co-defendants. In this suit, the co-defendants will be required to pay damages in proportion to their blame for causing the injuries. 

For example, suppose that A and B negligently injure V. Suppose further that V successfully sues A and B for $100,000, that the jury finds A 10% responsible for V's injuries, and B 90% responsible. Because A and B are jointly and severally liable, V may collect the full $100,000 from A. A may then demand that B pay their share of the judgment - here, $90,000.

Ideally, allowing for contribution means that the ultimate outcome of a lawsuit in joint and several liability jurisdictions is the same as one in a several liability jurisdiction. In practice, however, contribution shifts the risk of insolvency from plaintiffs to defendants. 

Imagine again the scenario above where A is 10% responsible and B is 90% responsible. In a several liability jurisdiction, where negligent defendants are only liable for their proportionate share of damages, V can collect at most $10,000 from A and $90,000 from B. In the event that B is insolvent, the most V can collect is $10,000. In a joint and several liability jurisdiction, V will still collect $100,000 if B is insolvent but A will lose an extra $90,000 because they can no longer obtain contribution. For an example of this concept in practice, see Walt Disney World v. Wood

Business Law

In business law, contribution may refer to a capital contribution, which is money or assets given to a business or partnership by one of the owners or partners. The capital contribution increases the owner or partner's equity interest in the entity. Capital contributions are not considered business income unless given in the form of a loan.

Contribution may also refer to a charitable contribution, which is money or assets given to a corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes. Charitable contributions are tax deductible for up to one half of an individual's adjusted gross income, and up to ten percent of a corporation's taxable income.

 [Last updated in July of 2022 by the Wex Definitions Team