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Are You Personally Liable for Contracts You Sign For Your Employer?

Can an employee be held personally liable for executing a contract on behalf of his or her employer if the employer fails to pay? Recently, the Massachusetts Appellate Division decided this issue in Yellow Book, Inc. v. Tocci.

In Tocci, the Plaintiff Yellow Book, Inc. was the publisher of a printed phone book and a separate electronic phone book. On three separate dates, Defendant Tocci as the office manager for a company doing business as Pro Insulators executed a preprinted contract for advertising services in exchange for monthly payments. Each contract listed Pro Insulators as the customer. Below each signature line, in boldface print, were the words, "Authorized Signature Individually and for the Customer." Following the signature blocks, in fine print, was a reference to reading certain paragraphs on the back of document. The paragraphs on the back contained language to the effect that the signer of the agreement by his or her execution, personally and individually, assumes full performance including payments of amounts due.

Eventually, Pro Insulators failed to pay Yellow Book for the advertising services. As a result, Yellow Book sued both Pro Insulators and Tocci, personally, for the outstanding debt in district court under theories of breach of contract, unjust enrichment and quantum meruit. Accordingly, Yellow Book contended that Tocci is individually liable under the executed agreements and the fine print.

Tocci filed a motion for summary judgment on the grounds that the contracts as to her failed for lack of consideration. Yellow Book then filed a cross-motion for summary judgment against Tocci. The court allowed Yellow Book's motion for summary judgment as to liability and denied Tocci's motion. Tocci appealed.

On appeal, Tocci argued that there was no consideration meaning she received nothing in return for executing the agreement. Yellow Book disagreed arguing that Tocci received a benefit from the agreement. The Appellate Court found that an owner, investor, or principal of a company "who signed would certainly have a benefit from the deferred obligation and consideration would thus be received by that person." However, Yellow Book failed to prove how Tocci, a mere salaried employee, would receive any benefit from the right of deferred payment given to her employer. The Appellate Court held:

True, by her signature, Tocci promised to be individually liable for Pro Insulator's debt. And her misreading or failing to read the agreements is no defense. One who signs a writing that is designed to serve as a legal document, as this and its enclosure were, is presumed to know its contents. ... But she received no compensation, from either Pro Insulators or Yellow Book, for this promise. No enforceable contract can be rested on such a promise as it was without consideration.

Therefore, the Court ruled that Tocci's motion for summary judgment resting on the failure of consideration should be allowed.

The Tocci case stands as a reminder to businesses and individuals that in order for a contract to be binding there must be consideration, a bargain for exchange. No agreement is enforceable on any business or individual if there is a lack of consideration. This decision should also ease simple salaried employees' concerns that they maybe individually liable for their employers' obligations when executing contracts on their employers' behalf unless you receive a benefit.

Contact Attorney Mucci, an experienced contract enforcement attorney, if you have questions about terms in a contract or enforcement of contract obligations.

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