Agent of Disclosed Principal in Contract Litigation (Is It A Corporate Or a Personal Obligation?)

 

imageSometimes it’s difficult to determine who the contracting parties are.  A common example is where the contract text names the parties are two corporations but it’s signed by an individual.  Or, the contract signer clearly notes his corporate affiliation (by stating his job title) next to his signature, but the body of the contract states that the parties are individuals (not corporations) or that the signer is personally guaranteeing the corporate obligations.

Yellow Book Sales and Distribution Co. v. Feldman, 2012 IL App (1st) 120069 illustrates the importance of signature line clarity in contracts in determining the responsible party if a contract is breached.

In Yellow Book, the plaintiff sued an officer of a defunct corporation for breach of  several advertising contracts.  The contract was between two corporations – an advertising firm (plaintiff) and a glass company.  The glass company’s President signed the contracts and wrote “President” or “Pres.” next to his signatures.

The contracts’ signature blocks provided that the signer “personally and individually” assumed full responsibility for the contracts and a contract term on the back page also provided that the signer guaranteed the corporate obligations.

After the corporation dissolved (the corporation was in good standing when the contracts were signed), the plaintiff sued the corporate officer individually for unpaid invoices.  After a bench trial, the trial court found for the plaintiff and the officer appealed.

Result:  Affirmed.

Reasoning:

The contract clearly provided in two different places (signature block and the “Terms and Conditions” section) that the defendant was signing both for the corporation and for himself.

Generally, when a corporate officer signs a contract and indicates his corporate status next to his signature, this insulates the officer from personal liability.  ¶ 38. 

This is a manifestation of the agent of a disclosed principal rule – a corporate officer isn’t personally liable on contracts he signs on behalf of his corporate principal/employer.  (¶¶ 38, 48); See 810 ILCS 5/3-402(a)(b) (where organization name is followed by signature of representative, the signature is deemed made in representative capacity).

The contracts’ text stated that the contracting parties were two corporations and the corporate officer who signed the contracts indicated his corporate affiliation (“Pres.”, “President”) next to his signatures.

Still, this wasn’t enough to defeat the clear contract language in two separate locations that unequivocally stated the defendant was personally guaranteeing the corporation’s contract obligations.

Also critical to the First District’s ruling was the bargaining equality element: the defendant was a lawyer and experienced businessman who testified he clearly understood the difference between personal and corporate liability.

There was also trial testimony that showed defendant was given an opportunity to review the contracts before he signed them and the parties had done business together for over a decade.

Lastly, the Court also noted that defendant made no attempt to either cross out the contracts’ guarantee language or insert language that clarified he was signing only for the corporation and not for himself.  ¶¶ 46-48.

Afterwords:

1/ The contract text and signature line should clearly identify the contracting parties and the signature block should reflect who is signing – an individual, a business entity or both.

2/ If the intent is for the contract to bind a business entity only (not an individual), the contract and signature block should say so and the signer should note his job title or corporate affiliation.

3/ If a contracting party wants the signing corporate officer to be responsible along with the corporation, the signature line should make clear that the person signing is doing so on his own (and not just his company’s) behalf.