Officer Not Liable For Contract Signed on Behalf of Company

On September 13, 2018, Justice Scarpulla of the New York County Commercial Division issued a decision in Level Group Inc. v. Smart Merchants Inc., 2018 NY Slip Op. 32259(U), holding that an officer was not personally bound by a contract he signed on behalf of his company, explaining:

In support of the cross-motion to dismiss the first cause of action against Kim, Defendants rely on the Letter Agreement and argue that Level cannot maintain this claim against Kim because there is no privity of contract between Level and Kim. Defendants argue that, because Kim only signed the Letter Agreement in his corporate capacity on behalf of SMI, he cannot be held personally liable for the purported breach of the Letter Agreement.

Officers or agents of a company are not personally liable on a contract if they do not purport to bind themselves individually, which must be shown by some direct and explicit evidence of actual intent.

The portion of the Letter Agreement that Kim signed is in the following form:

Accepted and agreed to,
Smart Merchants Incorporated
By:
Chung Chan Kim, President.

Kim's signature follows the word "By." This signature was made in Kim's corporate, not individual, capacity. Defendants have thus established their entitlement to judgment as a matter of law on the portion of its cross-motion for summary judgment to dismiss Level's breach of contract claim against Kim individually.

In opposition, Level argues that Kim may be personally liable for the breach of the Letter Agreement because, by signing the Letter Agreement - which defines SMI as "SMI and all entities which whether directly or indirectly, are controlled by SMI or any person or entity with a direct or indirect interest in any of the foregoing" - Kim clearly expressed his intent to be bound individually. This argument is meritless.

Level has not offered any direct and explicit evidence of actual intent of Kim's intent to be bound in his individual capacity to the Letter Agreement. Therefore, Defendants' cross-motion for summary judgment dismissing the first cause of action against Kim is granted, and Level' s motion for summary judgment is denied.

(Internal quotations and citations omitted).

Usually, the only parties who have rights or obligations under a contract are the parties to the contract. Here, a party tried--but failed--to sue an individual who signed a contract on behalf of a company. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure whether you have rights or obligations under a contract.