The most common advice you hear with regard to legally binding agreements is this: Be careful what you sign.
We recently successfully wrapped up a case that comes with a modified warning everyone should heed: Be careful how you sign.
Our client, Marion Mall Associates, LLC, filed a breach of a written commercial lease agreement claim against two defendants who had leased space in a commercial property at 2211 Meriden-Waterbury Road in Marion, a neighborhood in the town of Southington.
Because of how the defendants signed the lease agreement and paid the security deposit—as individuals rather than strictly and formally as agents of their LLC—they ultimately faced a judgment against them individually, rather than against the LLC.
If those defendants had signed the lease more carefully, the LLC would have been the sole defendant in the case and the individual defendants likely would not have been personally liable.
This is a significant distinction for making a simple mistake that happened in seconds—being too casual in signing a legally binding agreement. The case underscores the necessity of consulting with an attorney before inking any document or deal that you could be on the hook for later.
Here’s a bit of a deeper dive into the case, including the cautionary findings in the Memorandum of Decision from the Hon. Glenn A. Woods:
On Feb. 12, 2013 the landlord and tenants entered into a written commercial lease agreement with a term of two years for two units within a commercial development, or roadside “mall.” The intention of the defendants was to open a liquor store.
The lease was to commence that April 1, and the defendants were allowed to take possession of the units as of the signing of the lease on Feb. 12.
According to the plaintiff’s claim, when the defendants were notified sometime after April 1 that they were in default of the lease, for nonpayment of the first month’s rent, the defendants subsequently vacated the premises.
A new tenant could not be found until seven months after the defendants left—leading to the plaintiff’s allegation that the defendants were responsible for seven months of unpaid rent, seven months of common charges, and 179 days of late fees. Excluding the $2,250 security deposit, the total was $20,496.
While the plaintiff was alleging breach of contract by the defendants for nonpayment of rent, the defendants asserted that they were “not the tenants named in the lease agreement between the parties, and are therefore not the proper defendants in the instant action … .” From a legal standpoint the tenant was the LLC, argued the defendants, who also filed a counterclaim.
The lease agreement was void, the defendants also claimed, because the plaintiff failed to “comply with standards of health, sanitation, fire housing and safety as required by law.” Furthermore, the defendants alleged the Southington Building Department issued a cease-and-desist order against the plaintiff for code violations, which prevented them from occupying the leased units and opening the liquor store.
In making those allegations, the defendants claimed the plaintiff owed them the $2,250 security deposit, $5,000 spent on improvements to the leased space, punitive damages of $14,500 and attorney’s fees.
Judge Woods ruled decisively for the plaintiff, while pushing aside the defendants’ claims about code compliance. Citing testimony from the Southington building inspector, the judge wrote “ … there was no issuance of a cease and desist order between the dates of February 12, 2013 and April 1, 2013, when the parties entered into the lease agreement, and when rent payments were to commence.”
All that was left to decide was the question of whether the defendants were personally liable for the judgment because of how they initiated the lease agreement—or whether, as they claimed, the lease agreement was technically between the plaintiff and the LLC, the named tenant on the first page of the lease.
Under Connecticut law, Judge Woods cited, “where an agent contracts in his own name, without disclosing his representative capacity, the agent is personally liable on the contract.”
In citing case law, the judge elaborated: “In order for it to be determined that an agent has disclosed his representative capacity, it must be disclosed that the agent is acting in a representative capacity at all times, and not an individual capacity.”
In this case, the judge ruled, the defendants did not indicate their representative capacity when they signed their names on the lease. As further evidence that they “did not disclose that they were acting in a representative capacity while contracting for this lease agreement,” the judge noted that one defendant “paid the security deposit with his personal check.”
Because they were found to have acted individually in securing the lease, the defendants were “individually liable for breach of the lease,” according to the decision that came with this price tag for the defendants: $15,750 in unpaid rent from April 1 through November 1, 2013; $3,416 in unpaid common charges; $3,580 for unpaid late fees, and $8,519.91 in attorney’s fees and costs.
After the security deposit was subtracted from the $31,265.91 total, the defendants, including the individual defendants, were left owing Marion Mall Associates $29,015.91—all because representatives of an LLC did not legally act as such in initiating a lease and signing legal documents.
With offices in Danbury, New Milford, Kent, Litchfield and Washington Depot, the firm serves clients throughout Connecticut. To learn more, call the New Milford office at (860) 355-2631 or see the website at www.crameranderson.com.