What is your liability when signing legal documents?
Legal documents are frequently prepared by the professionals involved in the transaction, such as escrow or title companies, but it is important that the signer of the documents carefully review the manner in which the signer’s name is set forth on the documents, and in what capacity he signs the documents, especially if the party to the transaction is a legal entity such as a corporation or limited liability company. Unless the document is signed “By”, or “as President”, or “as Managing Member”, it may be determined that the document was signed in an individual capacity, with personal liability for the signer. Such a result defeats the corporate shield, the main purpose of entering into contracts as a corporation or limited liability company. In California, it is essential that the documents disclose the identity of the principal (e.g., trust, corporation, limited liability company) to relieve the agent (i.e., signer) from liability. If the principal is not sufficiently disclosed, the agent may be found to be personally liable on the contract. The simple addition of the word “By” on the signature line would reveal that the other party was dealing with a corporation or other entity that was liable, and not the agent signing the document. In addition, the signer can specify his officer position with the corporation such as “as President” or “as Secretary” to further guard against personal liability.
If it is necessary to have the individual assume personal liability along with the entity, the signature line could read “By Joe Smith, individually, and as President of ABC, Inc.”
Legal Documents: Case in Point
In a case against the late Thomas Kincade’s corporation, a claimant I represented formed a corporation specifically to enter into the franchise agreement to open an art gallery. Although the contract disclosed the name of the claimant’s corporation, he erred by signing just his name, and not his position as the president of his corporation. After the claimant defaulted in the payment of the sum due on the contract for the purchase of Kincade’s art, Kincade’s corporation cross-complained against the claimant individually for the $200,000 his corporation owed on the contract. The Court rejected the claimant’s contention that he signed the contract on behalf of his corporation and did not have personal liability under the contract, finding that by signing as an individual, with no reference to his position as president of his corporation, the claimant was personally liable for the sum owed.
Therefore, whenever signing a contract on behalf of a legal entity such as a corporation or limited liability company, use of the term “By” and the identity of the signing party as an officer or member should be clearly set forth on the document to protect against a Court finding the signer entered into the contract as an individual with personal liability.
For information only by Craig B. Forry, attorney, broker, expert witness/consultant,and no retainer agreement is intended or created. Please direct your questions to:
15501 San Fernando Mission Blvd., Suite 309
Mission Hills, CA 91345
Office: (818) 361-1321
Fax: (818) 365-6522
Monday – Friday 9:00 am to 5:00 pm
Saturday – Sunday By Appointment
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