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Guarding your John Hancock

"Never sign anything without letting your attorney review it first". This is advice many in the business community have likely heard ad nauseam from their legal counsel. As business litigators can attest, it is also advice not always heeded. This was seen often after the real estate crash, where many deep pocketed individuals had personally guaranteed speculative real estate or business endeavors, only to be pursued vigorously upon their failure. While the danger of signing a personal guaranty is still fresh in the minds of the business community, individual liability arising out of a limited liability entity can still rear its ugly head.

In June, the Georgia Court of Appeals issued another opinion confirming the dangers of signing any document without seeking legal advice. In Buffa v. Yellowbook Sales and Distributing Co., Inc., No. A14A0209, 2014 WL 2766746 (Ga. Ct. App.), a Georgia LLC was sued along with its manager in his individual capacity for failing to pay invoices under several service agreements. The trial court found the manager was individually liable for the debt, despite his argument that he only signed the agreements as a representative of the LLC. The Georgia Court of Appeals affirmed the trial court's decision, finding that language within the agreement bound the manager individually.

Specifically, the Court of Appeals focused on a clause within the agreements which indicated the manager had agreed to become personally liable for the debt. Clause 15F in the agreements provided the following: "The signer of this agreement does, by his execution personally and individually undertake and assume the full performance thereof including payments of amounts due thereunder." Additionally, the signature blocks indicated personal liability for the manager: "This Is an Advertising Contract Between Yellow Book and [printed company name] and [signature] Authorized Signature Individually and for the Company (Read Clause 15F on reverse side)."

The manager was held individually liable for the full amount due, in addition to attorney fees and interest. It is likely the Court would have found Clause 15F to have bound the manager individually even if it had not been referenced in the signature block. The lesson is of course that every word in a contract - even one found in the 15th section - can be tremendously important.

Corporate lawyers always prefer the ease of counseling clients pre-transaction rather than litigating any subsequent fallout. Clients typically prefer the size of the bill, too, when they seek advice before signing on the dotted line.

Written by: Bryan Schivera

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