What is your liability when signing legal documents?
Legal documents are frequently prepared by the professionals involved in the transaction, such as escrow or title companies, but it is important that the signer of the documents carefully review the manner in which the signer’s name is set forth on the documents, and in what capacity he signs the documents, especially if the party to the transaction is a legal entity such as a corporation or limited liability company. Unless the document is signed “By”, or “as President”, or “as Managing Member”, it may be determined that the document was signed in an individual capacity, with personal liability for the signer. Such a result defeats the corporate shield, the main purpose of entering into contracts as a corporation or limited liability company. In California, it is essential that the documents disclose the identity of the principal (e.g., trust, corporation, limited liability company) to relieve the agent (i.e., signer) from liability. If the principal is not sufficiently disclosed, the agent may be found to be personally liable on the contract. The simple addition of the word “By” on the signature line would reveal that the other party was dealing with a corporation or other entity that was liable, and not the agent signing the document. In addition, the signer can specify his officer position with the corporation such as “as President” or “as Secretary” to further guard against personal liability. Continue reading