What and How You Sign a Contract Matters

by Gray Reed & McGraw

Needing a sales boost for his new line of fashion catheters, Sy Noff, owner and President of Med, Inc., retains advertising gurus Draper & Olson. Their contract provided for signature by Sy Noff as “President and CEO” of “Med Catheter Corp, Inc.” Despite Draper’s instantly iconic advertising campaign featuring Med Man, a rugged rancher who proudly uses Med’s “Healthy Heartland”-brand catheters whilst cow-punching on the range, Med’s business goes down the tubes. Sy and Med stiff Draper & Olson on their $100,000 ad bill. Noticing that Sy Noff signed the ad contract for the wrong company name, Draper & Olson’s diligent attorneys sued Sy Noff himself for Med’s debt because he did not disclose the true legal name of the company he was signing for. Sy complains that he cannot be held personally liable for Med’s corporate debt simply because “the company name was wrong on the contract!”

First, don’t call us, Shirley. Second, you bet he can.

The Case of John C. Flood

The Texas Supreme Court recently upheld an advertising company’s judgment secured by Gray Reed attorneys Cleve Clinton and Alex Fuller against the insolvent company’s president, personally, in the case of John C. Flood of DC, Inc. v. SuperMedia, LLC. (“Flood”), holding him personally liable for the debts of his company. Like Sam Signer, the Flood name was not exactly right. It did not state his company’s full legal name – instead, the contracts listed the company with a number of other names that were incorrect. Relying on a legal doctrine known as the “partially disclosed principal,” the vendor sued the customer, personally, alleging that the true legal name of the company was only partially disclosed on the contracts.

Once the vendor proved that the contracts did not have the customer’s correct legal name, the customer had to both plead and prove that the vendor had actual knowledge of the true legal identity of his principal at the time the contract was signed. When the customer and his attorney failed neither to plead nor prove that SuperMedia had actual knowledge of Flood’s true legal name, SuperMedia was entitled to judgment against Melville Davis personally for the full amount of over a quarter million dollars.

Tilting the Scales in Your Favor

Yes, Cleve and I are tooting our horns a bit – this blog’s first. Yet, there are at least two important “takeaways” for anyone who signs contracts on behalf of their company.

Sign Only for the Correct Entity. First, figure out who the correct entity is. Then make sure that when you sign a contract, it names the correct entity. Sign only under the correct, legal name of that entity.

Sign Only with Your Correct Company Title (or, at the very least, as “Agent”). Second, always make sure that your authorization to sign as an officer, director, agent, duly authorized agent, or other capacity is clearly indicated adjacent to your name (over, beside or under). For example, Sy Noff, CEO,” Sy Noff, President,” “Sy Noff, CEO and President,” or some such. By the way, this specifically includes Company Checks.

If you want to read more: check out all of the legalese describing the Flood case, from the Dallas Court of Appeals or as blogged by other lawyers at “CAPACITY” OR “STANDING” IN A BREACH-OF-CONTRACT CASE, AND THE IMPORTANCE OF TIMELY FILING A VERIFIED DENIAL OF CAPACITY, and at INCAPACITATED.

[1]  408 S.W.3d 645 (Tex.App.—Dallas 2013, pet. denied).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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