Can You Be Personally Responsible When You Sign A Contract As President Of A Corporation?

Ordinarily, the answer is no.  However, you must carefully read contract terms before assuming you will not be personally liable for company debts.  The Connecticut Supreme Court recently addressed an example where the terms of the contract created personally liability for the president of a company.  Yellow Book decisionThe case is Yellow Book Sales v. Valle.  images(3)[1]

When a corporation is the primary party to and signer of a contract, and the signature is by an officer of the corporation, the generally held rule is that the corporation is responsible and not the individual officer.  This is a rule of construction or interpretation for contracts.  Generally, this rule will apply if the contract is between a corporation and another party, and there is no indication of personal liability in the terms of the contract or on the signature line.  

However, there are circumstances where the general rule does not apply.  In Yellow Book, the Supreme Court of Connecticut found that there were terms in the contract clearly indicating an intent to bind the individual signer as well as the company.  In this particular case, the president of the company signed his name and added the terms "president" to his signature.  Adding the term "president" did not prevent personal liability in this case because the contract terms were clear that there was a personal obligation.

The language in the contract read "[t]he signer of this agreement does, by his execution personally and individually undertake and assume full performance . . ."  As such, it was not ambiguous to the court when the signer added the term "president."  Instead, the court found that the contract, by its clear terms, bound the the signer as an individual and the company.  When the company ceased operations, the president was stuck with the obligation.  

If you want to avoid personal liability for corporate debts, make sure you  read the contract terms closely and not only the signature line.  The signature line may not govern the outcome. The terms of the contract, the party to the contract, and the signature should only be on behalf of the corporate entity.   If there is any confusion based on the terms of the contract, seek legal counsel.  

Supreme Court Offers Another Reminder on Personal Liability for Corporate Officers

 Can an officer of a corporation face personal liability in a business transaction?  The Connecticut Supreme Court clearly stated that personal liability exists for corporate officers in certain circumstances.  The case is Coppola Construction Company, Inc. v. Hoffman Enterprises Limited Partnership. The sole issue on appeal was "whether a corporate principal or officer may be held personally liable for the tort of negligent misrepresentation in connection with statements made by that principal or officer that, under the apparent authority doctrine, also created binding contractual liabilities for the corporate entity."

 In the Hoffman case, the lower court had stricken a complaint alleging that the Defendant Jeffrey Hoffman was personally liable.  However, the Appellate Court overruled the decision and the Supreme Court affirmed finding that the plaintiff’s complaint properly alleged personal liability against Hoffman.

The decision included significant issues surrounding the doctrine of apparent authority, and pleading matters in the alternative in the complaint. However, for purposes of this post, the focus is confirming once again that officers of a corporation can be found personally liable for torts, such as misrepresentation and fraud.  To properly allege an action for negligent misrepresentation, a plaintiff must allege that:

  • the defendant made a misrepresentation of fact
  • the defendant knew or should have known that is was false
  • the plaintiff reasonably relied on the misrepresentation
  • some pecuniary harm resulted to the plaintiff

The Court in the Hoffman case went on to state that in Connecticut it is "black letter law that an officer of a corporation who commits a tort is personally liable to the victim regardless of whether the corporation itself is liable."  The Court then listed a whole series of other cases where courts have found that the officer could be liable for torts regardless of whether there was a contractual remedy that also existed against the company.

I posted about this case because many people believe that a corporation or limited liability company will shield them from all types of lawsuits.  This is a common misunderstanding of the law.  I have posted about this same issue in the context of limited liability companies.  The bottom line is that a business entity will not always protect an officer or owner in all situations.  Two situations include torts and circumstances where the protective veil afforded by the entity is pierced. The Hoffman case serves as an another example of an officer facing personal liability despite the corporate entity.