Beware of Personal-Liability Clauses – Even When Signing in Your Representative Capacity

When a contract is drafted by a party, the other party expects some level of one-sidedness in favor of the drafter.  But there are times when a contract goes too far.  There are certain provisions that most persons in the construction industry would find unacceptable, unfair, and beyond the pale – even for a one-sided contract.  Such a provision was arguably found in an electrical subcontract at issue in a 2014 opinion by a three-judge panel of the Georgia Court of Appeals.  Unfortunately, due to long-standing Georgia law, the panel was forced to apply the provision as written.

In the case, a contractor hired a subcontractor to perform the electrical scope of work.  When the subcontractor failed to pay a sub-subcontractor, the sub-subcontractor filed suit against the subcontractor, contractor, and the payment-bond surety.  The contractor asserted a claim of indemnity against the subcontractor based on the sub-subcontractor’s claim.

The subcontract at issue contained a peculiar provision that imposed personal liability on the person signing the contract, even though his signature was clearly intended to be on behalf of his company.

Each and every individual signing on behalf of [Subcontractor] also further agrees that . . . each such individual . . ., in addition to signing in a representative capacity, is also signing [the Agreement] in his or her personal and individual capacity and . . . hereby individually and personally agrees to be bound by all of the obligations of [Subcontractor] . . . .

The subcontractor’s signature block not only contained the company’s name, it contained the signer’s title on behalf of the company.  It had no other signature block for the signer to sign in his individual capacity.

Nevertheless, according to the court, upon executing the agreement, though clearly in his representative capacity, the signer became personally liable for the obligations of the subcontractor in the subcontract.

Georgia courts will, almost universally, enforce the plain terms of the parties’ written agreement.  Moreover, parties are expected to read their contracts, and they cannot use their failure to read a contract as an excuse.

The contract provision at issue was clear, and there was no evidence of emergency conditions, fraud, or confidential relationship between the parties.  As a result, the court was forced to apply the provision against the signer in his individual capacity.

Due to this troublesome provision, persons in the construction industry must pay extra attention to the contracts they execute.  They must now question whether a similar provision is contained in the contract.  They cannot simply rely on the capacity in which they sign.  But perhaps another approach is to avoid contracting with parties who use such provisions in their contracts.

The case is Progressive Elec. Services, Inc. v. Task Force Const., Inc., 760 Ga. App. 608 (2014).