Needing a sales boost for his new line of fashion catheters, Sy Noff, owner and President of Med, Inc., retained advertising gurus Draper & Olson. Their contract provided for signature by Sy Noff as “President and CEO” of “Med Catheter Corp, Inc.”
After a three-martini lunch, Draper & Olson run up a $100,000 bill creating an instantly iconic advertising campaign featuring the Medicorp Man, a rugged rancher who isn’t afeard to proudly use Medicorp’s “Healthy Heartland”-brand catheter whilst cow-punching on the range. Despite the instantly iconic advertising campaign, Med’s business goes down the tubes. Sy and Med stiff Draper & Olson on their $100,000 ad bill. Noticing that the ad contract was signed by Sy Noff using the wrong company name, Draper & Olson’s diligent attorneys sued Sy Noff himself for Med’s debt because he did not disclose the true legal name of the company he was signing for. “But surely,” Sy says, “I cannot be held personally liable for Medicorp’s debt simply because the company name was wrong on the contract!”
First, don’t call us Shirley. Second, you bet he can.
The Case of John C. Flood
The Texas Supreme Court recently upheld an advertising company’s judgment secured by Gray Reed attorneys Cleve Clinton and Alex Fuller against the president of the insolvent company, personally, in the case of John C. Flood of DC, Inc. v. SuperMedia, LLC.(“Flood”), holding him personally liable for the debts of his company. Like Sy Noff, the Flood name was not exactly right. It did not state the company’s full legal name – instead, the contracts listed the company with a number of other names that were incorrect. Relying on a legal doctrine known as the “partially disclosed principal,” the vendor sued the company’s president, personally, alleging that the true legal name of the company was only partially disclosed on the contracts.
Once the vendor proved that the contracts did not have the company’s correct legal name, the company president had to both plead and prove that the vendor had actual knowledge of the true legal identity of his principal (the company) at the time the contract was signed. When the company president and his attorney failed neither to plead nor prove that SuperMedia had actual knowledge of the company Flood’s true legal name, SuperMedia was entitled to judgment against the company president personally for the full amount of over a quarter million dollars.
Tilting the Scales in Your Favor
Yes, Cleve and I are tooting our horns a bit. There are at least two important “takeaways” for anyone who signs contracts on behalf of their company.
Sign Only for the Correct Entity. First, figure out who the correct entity is. Then make sure that when you sign a contract, it properly names the correct entity. Sign only under the correct, legal name of that entity.
Sign Only with Your Correct Company Title (or, at the very least, as “Agent”). Second, always make sure that your authorization to sign as an officer, director, agent, duly authorized agent, or other capacity is clearly indicated adjacent to your name (over, beside or under your signature). For example, Sy Noff, CEO,” Sy Noff, President,” “Sy Noff, CEO and President,” or some such. By the way, this specifically includes Company Checks.
If you want to read more: check out all of the legalese describing the Flood case, from the Dallas Court of Appeals or as blogged by other lawyers at “CAPACITY” OR “STANDING” IN A BREACH-OF-CONTRACT CASE, AND THE IMPORTANCE OF TIMELY FILING A VERIFIED DENIAL OF CAPACITY, and at Incapacitated,