It is black letter law that one who signs an agreement in his or her corporate capacity is not personally liable. It is therefore remarkable how much litigation there is involving the issue of whether an individual signing for the corporation has also personally obligated himself under the agreement.[1]
The general rule laid out by the New York Court of Appeals in 1961 in Salzman Sign Co. v. Beck is that a corporate representative will not be liable for a corporation’s debts unless there is a manifestation “clear and explicit of the [representative]’s intention to substitute or superadd his personal liability for, or to, that of his principal.”[2]
In Salzman, the defendant corporate president signed a printed form contract on behalf of the corporation, which contained the following provision in the middle of the contract (paragraph 5):
Where the Purchaser is a corporation, in consideration of extending credit to it, the officer or officers signing on behalf of such corporation, hereby personally guarantee the payments hereinabove provided for.[3]
Even though the contract explicitly stated that the president was personally liable, the Court ruled that he was not. It based its decision on the fact that notwithstanding this clause, there was no “clear and explicit” evidence that he had intended to become personally liable. It ruled that individual liability would not be shown unless the president had signed twice – once for the corporation and once personally.[4]
From a policy standpoint, the Court of Appeals’ decision was based on its concern with preventing unwary corporate representatives from unwittingly becoming liable for corporate contracts that contained hidden or nondescript personal liability clauses. The Court explained:
In modern times most commercial business is done between corporations, everyone in business knows that an individual stockholder or officer is not liable for his corporation's engagements unless he signs individually, and where individual responsibility is demanded the nearly universal practice is that the officer signs twice -- once as an officer and again as an individual. There is great danger in allowing a single sentence in a long contract to bind individually a person who signs only as a corporate officer. In many situations the signing officer holds little or no stock and if the language of the agreement makes him individually liable his estate may be stuck for a long obligation it never dreamed of assuming.[5]
From this decision arose the “double signature” rule – which provides that an individual signing for a corporation cannot be held personally liable unless he or she signs the contract twice.[6]
The double signature rule can be overcome only where there is clear and explicit evidence that the corporate representative intended to bind him or herself personally so that what is before the court is “not a situation wherein the plaintiff attempted to trap an unwary corporate officer into making an unintended assumption of personal liability by inserting an obscure clause in the midst of a lengthy and complex contract.”[7] At the same time, it is clear that the inclusion of a single sentence purporting to bind an agent personally is insufficient to establish such intent.[8]
A separate, but related, issue which is often litigated is whether the individual is personally liable where the signature line does not indicate that the individual was signing in a representative capacity. Even then, the individual can be held not personally liable if the contract, interpreted as a whole, indicates that the intended party was the corporation. Significantly, it has been held that “the presence or absence of a reference to corporate office above or below a person’s signature on an instrument does not necessarily determine the capacity in which the person signed the instrument.”[9]
Thus, it has been held that officers of a professional corporation, who signed an office lease without any indication that they were signing in their representative capacities, were not personally liable because the context of the lease indicated that the “tenant” was intended to be the professional corporation and not themselves individually.[10]
[1] E.g. Georgia Malone & Co., Inc. v. Reider, 86 A.D.3d 406, 408 (N.Y. App. Div. 1st Dep’t 2011).
[2] Salzman Sign Co. v. Beck, 10 N.Y.2d 63, 67 (N.Y. 1961) (citation and internal quotation marks omitted).
[3] Id. at 65.
[4] Id. at 66-67.
[5] Id. at 67.
[6] Id.
[7] See Florence Corp. v. Penguin Constr. Corp., 227 A.D.2d 442, 443 (N.Y. App. Div. 2d Dep’t 1996) (collecting cases).
[8] Herman v. Ness Apparel Co., 305 A.D.2d 217, 218 (N.Y. App. Div. 1st Dep’t 2003).
[9] 150 Broadway N.Y. Assocs., L.P. v. Bodner, 14 A.D.3d 1, 7 (N.Y. App. Div. 1st Dep’t 2004) (citing PNC Capital Recovery v. Mech. Parking Sys., 283 A.D.2d 268, 270-271 (N.Y. App. Div. 1st Dep’t 2001)).
[10] See id. at 7-8.