Contractual Personal Liability: The Body Trumps the Signature Line

When negotiating and drafting a contract on behalf of a business, one of the most important considerations is whether it will create personal liability for the individual signing on behalf of the business, as illustrated by a recent decision from Florida’s Third District Court of Appeal, Frieri v. Capital Investment Services, Inc., — So. 3d —-, 2016 WL 2941081 (Fla. 3d DCA 2016).

Frieri involved an investor who contributed $6 million to a business trust that he formed with the president of a small corporation, with each of them owning 50% of the trust.  In exchange for the investor’s contribution, the president of the corporation was to transfer 78% of the corporate stock to the trust.  However, after the investor paid over his $6 million contribution, the president of the corporation never transferred the stock.

When the two parties were unable to resolve their differences, the investor sued the president of the corporation and the corporation.  The investor alleged, among other things, that the president and the corporation had breached the stock-purchase agreement.  The trial court agreed, entering a final verdict in the amount of $7,369,222.00 against the corporation and the president individually.

The president and corporation appealed the judgment, with the president arguing that there was no basis for his personal liability.  The Third District disagreed with the president’s position, finding that, when two businesses contract, the entirety of the document must be analyzed to determine whether the parties intend to bind the businesses alone or whether the obligation extends to the signing agents in their individual capacities.   When the Court analyzed the contract at issue in whole, it found that the contract’s clear language indicated that the president had assumed a personal obligation because the contract called for the president himself, not the corporation, to place the shares of stock into the trust.  While there was text underneath the president’s signature on the contract that identified him as the president of the corporation, the Court found that the mere addition of the president’s official designation did shield him from personal liability when the contract’s plain language showed that he assumed a personal obligation to perform.  Because the contract called for the president to transfer the stock to the trust, the failure to do so was attributable to him, regardless of how he construed his signature to the contract.

This case is significant because the Court found personal liability where, apparently, it may not have been specifically contemplated and intended by the parties at the time of signing.  The Third District’s opinion makes it clear that, when determining if a party will face personal liability in a breach of contract scenario, the focus is on the totality of the obligation under the contract— if the obligation is one that is singular to the signing individual and not the company, then personal liability will attach.  Ostensibly, if the contract at issue in Frieri had stated that the corporation would turn over the stock to the trust and the president had then signed the contract in his representative capacity, then judgment would not have been entered against him personally.

The Frieri decision reflects that, when negotiating and/or drafting a contract, it is of the utmost importance for the attorney to understand the parties’ wishes vis-à-vis personal liability, and the drafter must then craft the language of the entire instrument to reflect those wishes.  It is clearly not enough under Florida law to avoid personal liability by simply relying on a signature block stating that the signatory is signing the contract in his representative capacity on behalf of a business.  Instead the obligations reflected in the body of the contract must clearly convey, wherever possible, whether the parties intend for the contractual obligation to create liability on behalf of the individual signing the contract or not.