The use of the corporate form to conduct business is primarily intended to protect the owners, shareholders, officers and agents acting on behalf of the corporation from personal liability related to the business. A corporate shareholder, officer, agent or employee is not normally liable for claims against the corporation.
In certain situations, however, if a corporate agent fails to disclose that he is acting in his capacity as an employee of the corporation, he may be held personally liable on the contract. In the recent case of Guo Window, Inc. v. A Affordable Storefront Sales & Service, Inc., the court denied an employee’s motion to dismiss the personal liability claim against him even though he claimed that he was acting on behalf of the corporation.
Guo Window Inc., a window supplier, sold windows for which there was a balance remaining due of $32,562. In an attempt to collect the balance due, the supplier sued James Zitis, personally, and A Affordable Storefront Sales & Service Inc., d/b/a Affordable Storefront, which is a corporate entity. The supplier’s invoices were made out to "Affordable Enterprises" and checks that the supplier received from that entity were printed with the name of "Affordable Enterprises." One of the checks paid to the supplier was signed by Mr. Zitis. Documents provided by the bank listed Mr. Zitis’ "title" as "V.P."
The records from the New York State Division of Corporations, however, list the entity as "Affordable Enterprises, Ltd.", which is the same name printed on both the companies’ checks and the supplier’s invoices, but does not include the "Ltd."
Mr. Zitis moved for summary judgment, seeking to have the claims against him dismissed. According to Mr. Zitis, the windows were sold to the corporate entity, A Affordable Storefront Sales & Service Inc., of which he was an employee. Mr. Zitis argued that payment was the responsibility of the corporation, not him personally.
The supplier argued, however, that it was never informed that Mr. Zitis was acting on behalf of a corporate entity when he placed the order, or when the windows were supplied. According to the supplier, it believed that it had contracted directly with Mr. Zitis, and had it known that it was contracting with a corporate entity, its credit terms would have been different.
The court denied Mr. Zitis’ motion for summary judgment. The court held there was no evidence that Mr. Zitis disclosed to the supplier that he was acting as an agent for a corporate entity.
The court relied on well settled case law that when an agent acts on behalf of a disclosed principal, the agent will not be personally liable for breach of contract absent clear and explicit evidence of the agent’s intent to be personally bound. However, where the agent enters into a contract for an undisclosed or partially disclosed principal, a third-party may proceed directly against the agent, the principal or both. The law imposes no duty on the window supplier, as the third-party, to inquire or conduct an investigation to obtain actual knowledge whether the person with whom it was dealing was in fact an agent for a disclosed principal. Absent appropriate disclosure by the agent, the agent may be held personally liable on the contract.
Since there was no evidence that Mr. Zitis informed the window supplier that he was acting in a corporate capacity when he ordered the windows, the court had no basis to dismiss the claims against him.
Corporate agents are not legally liable for the debts and liability of a corporation. However, doing business in the corporate form requires the disclosure of the entity that you are acting on behalf of. If a corporate agent enters into a contract and fails to disclose that he is acting in his capacity as an employee of the corporation, he may be held personally liable for claims made under the contract.