New Case Makes It Tougher to Avoid Individual Liability for Business Agreements
Most of us are aware that one of the biggest protections of forming a corporation is the avoidance of personal liability for anything that the corporation may do wrong. Put another way, as a general rule, we can’t be sued individually for wrongs of our company. The company is its own individual entity, separate from us as individuals, and thus, our personal assets are generally safe when a company is sued.
Traditional Rule for Personal Liability
Many business contracts make sure that there is no ambiguity as to who will be liable for a breach, by indicating that the person signing the contract is doing so “for” the business, “on behalf of” the business, or “as [position] of the business.”
The overwhelming legal authority says that when you sign a contract like this, you are only signing as an agent of the company, and not as you, personally. But a new case has cracked some holes in that theory, and business owners should be very careful going forward to make sure they aren’t accidentally making themselves personally liable.
Court Looks to Body of Agreement
The case involves an agent of a company that signed his name to a contract followed by language in the signature line that said “as a corporate officer” of the company. Only the company name was typed in the signature block, not the agent individually.
When the agent was sued personally after the agreement was breached, the trial court held that only the company, and not the person signing individually, could be sued because of the language in the signature line.
But the appellate court disagreed, looking to the language that was in the contract itself. The agent’s actual name was referenced in the body of the agreement. The contract stated that it was between one business and the other business, and the other business’ agent.
Further, the agreement’s requirements had provisions that only an individual, not a company, could follow.
For example, the agreement had drug testing requirements, requirements as to conduct at work, appearance requirements, and how payments were to be made and received—all requirements that are traditionally carried out by a person, not a company.
Thus, the appellate court held that the contract was ambiguous as to whether the parties intended to bind the individual agent, but that the individual should not have been dismissed. The appellate court allowed the case to go forward in the trial court, to determine whether the parties intended to bind the individual agent, or just the company.
Look Over Your Agreements
The case means that business owners can’t get away with just signing in a corporate capacity and assuming they are safe from personal liability. A court will look to the contents of a contract to make the determination if an individual agent can be sued.
This means that the requirements and language in business agreements must be tailored to avoid unwittingly exposing individual owners, agents or partners, from personal liability.
Always have an attorney review your business agreements to make sure you and your business are protected. Contact Tampa business attorney David Toback to discuss how to make sure that your business is doing all that it can do to be safe and operate within the law.