One of the biggest problems in dealing with closely held corporations and limited liability companies is that the contracts for services are with those entities rather than the individual officers/directors/members. The purpose for which they are created is to limit liability. It works very effectively...leaving the officers/directors/members free to walk away from any personal liability for the corporate debts. Unfortunately for the abstractors it is all very legal.
However, there are also legal ways around it. If a client wishes to benefit from the advantage of limited liability, the client is required to observe the legal formalities of operating as a corporation or LLC. Very often a client will operate under a trade name rather than a corporate/LLC name, or fail to use the full corporate/LLC name on their search order.In which case one of the easiest ways around the corporate shield is to require a signature on the search order.
Operating under a trade name while failing to disclose the full name of the underlying corporation or LLC , and failing to disclose his agency status may be enough to impose personal liability on the signatory. Simply failing to write the "Inc." or "LLC" after the name of the business shown on the contract may be enough to contribute to his personal liability because it is through these abbreviations that the other party to the transaction is given notice that he is dealing with an entity with limited liability. While a corporate or limited liability company has a legal identity... trade names do not. A trade name is simply a legal fiction created to market the client's services more effectively.
If the client is transacting business without making a full disclosure of its identity, and if the individual signatory fails to disclose his job title on the search order ...it may open the door to creating personal liability for the individual signatory alternately from the corporate/LLC liability.
Pursuant to the laws of agency in Connecticut an individual who is acting as an agent for a principal is required to disclose both that he is acting in the capacity of an agent and the full identity of the principal on whose behalf he is acting. He can disclose his agency status by carefully drafting the signature line on a contract to read something like this:
XYZ, Inc. d/b/a Fat Chance Enterprises
By ____________________
John Doe
President
Here Unto Duly Authorized
Through this type of signature the name of the corporation is fully disclosed. The trade name with the d/b/a (doing business as) is fully disclosed. The signatory's agency status is fully disclosed through the use of the word "by" in front of his signature and by the designation of his job title.
Very often an individual will simply sign his name to a contract/search order without this information...thinking that he is protected by the corporate shield...wrong. Under Connecticut law the signatory is required to make these disclosures at the time he enters into contract with the other party. It is not incumbent upon the other party to the transaction to have to search and discover this information on his own.
I have successfully sued individuals who thought they were protected by the corporate shield as recently as two years ago using this argument. It is not a matter of piercing the corporate veil...always difficult even in the case of "mom and pop" closely held corporations or LLC's. Rather it is a matter of the signatory acting as an agent for an undisclosed principal. In such suits piercing the corporate veil is not an issue.
You will need to make inquiry to find out if the law of agency in your state is similar to Connecticut's. I would be surprised if it were not. The law of agency has a long history of evolution from common law precepts.
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