How to sign a contract

Our firm represented an LLC recently. The LLC’s “Manager” came into our office requesting assistance with a lease dispute. When we reviewed the lease, we discovered that the manager was named individually as the party to be bound to the agreement, and on the signature page the individual had signed and written his name in his personal capacity, with no reference to the LLC or his role as its manager or as an officer or authorized agent of the company.

In this scenario, particularly when the business in question is a limited liability entity (such as a corporation or an LLC), the signor to the agreement had unintentionally defeated a portion of the liability protection that the entity would have offered, and could be personally obligated for the performance of the agreement.

This presented a potentially significant problem for the individual, who was at risk of being held personally obligated for the performance of the terms of the lease (namely, payment of rent).

The scenario is not hard to imagine; he had signed the lease while sitting at his desk, in his office, at his place of business, in the mindset of the LLC manager. His mind automatically drew the conclusion that the act of signing the lease was done so in his capacity as LLC manager, but the document’s terms did not lead to that same conclusion.

There are defenses and arguments that could be raised by the individual in his defense to try to avoid personal liability for the performance of the agreement, but the time and expense of making and proving those arguments – even if successful – would nevertheless require spending a significant amount of time and money.

Best practices would of course call for the document to be signed in the proper capacity from the beginning of the contractual relationship, to avoid the potential for such a conflict to arise.

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When reviewing a contract for your business, first verify that the business’s legal name is identified as the party to the agreement, not the individual name of the signor (unless signing as a sole proprietor).

When signing the document, ensure that the signature block lists the business’s legal name, and identifies the individual signor’s capacity as a signor on the business’s behalf, such as manager, president, vice president, or other title confirming the role that the individual maintains within the business.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on April 14th, 2015. You can read it on the Register's website here: "How to sign a contract"