Who is a Party to a Contract? Sometimes the Participants are Surprised!
How often does an officer of a corporation sign a contract, listing the business as the contracting party, but neglect to indicate that the business is a corporation or an LLC? Then sign the contract?
Marc Ward in his Blog discusses a case of, who are the parties to the contract?
Marc writes:
In Builders Kitchen and Supply Co. v. Moyer, N0. 0-655/09-0194 (September 2, 2009) is a deceptively simple case. On the one hand it represents the folly of not having even run of the mill contracts reviewed by lawyers before they are signed. And on the other hand, it is a warning to lawyers that things aren't as simple as they appear.
Frank Moyer signed a contract with Builders Kitchen for the purchase and installation of some kitchen cabinets and countertops. The contract was just two pages long. On the first page there was a place for the name of the business and a little later a space to indicate the type of entity. Moyer filled in the name of his business, Crystal Creek Development, but neglected to indicate that it was a corporation. He signed the contract as "Frank Moyer, Pres." The second signature line, presumably for the guarantor, was left blank.
The question for the court was, is Frank Moyer a party to the contract? As a simply matter of agency law, the answer has to be “Yes.” The officer of the corporation is an agent, and the agent has the duty to disclose the existence and name of the principal. For a lawyer these are fun cases, but I have had numerous attorneys argue with me that filing articles of incorporation are all the notice that the agent (officer) needs to give. That position, by the way, is not the law.
In Minnesota there is a famous case where the same thing happened. Except that in the Minnesota case the defendants were lucky. They had paid for the goods with checks that clearly showed that the seller was selling to a corporation, and the court found that the checks were sufficient notice. See Paynesville v. Ever Ready Oil, 379 NW2d 186 (Minn. App. 1985)
Earlier in my career I had an opposing counsel argue that a person listed as a contracting party and who signed the contract was really not intended to be a party.
Most people, including especially small business owners, are very informal when signing contracts, and create real problems for the principal of any company. The lesson is clear. Have an attorney review the contracts. Marc is right: Pay me Now or Pay me Later.
