contribution

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 reviewed in July of 2022 by the Wex Definitions Team ]

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