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Be Careful How You Sign Documents

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Conventional wisdom says to be careful what you sign. Of course this is true, but a very recent decision by the federal Court of Appeals for the Second Circuit once again illustrates that how you sign documents may be crucial in imposing liability (Bonnant v. Merrill Lynch). While the technical issues that were at stake in this case are beyond the scope of this brief comment, the critical issue on appeal was whether or not the individual who had clearly signed once in a representative capacity followed by a second signature of just his name had created personal (individual) liability with the second signature.

There are thousands of cases involving signature liability. The basic legal rules are straightforward. For one to sign in a representative capacity one must of course be a lawful representative. In a corporate situation representative status is usually demonstrated by a resolution by the corporation's board of directors granting the individual authority to represent the corporation in the transaction. Then at the signature line of the document in question the entity being represented is named, for example, XYZ Corporation. After that on a subsequent line one typically types the word By. Under that appears the name of the individual signing and the individual's representative office, for example, J. Smith, President. When Smith signs it is clear that she is signing as President of XYZ Corporation. Leaving off the name of the corporation on the signature line or the representative office just invites litigation. Court decisions may be found not imposing personal liability as well as imposing personal liability in these circumstances.

To sign as an individual, thus creating personal liability for performing the obligations contained in the document, a simple signature, for example, J. Smith, is sufficient. Sometimes the intent is to impose liability on both XYZ Corporation and Smith. This may be done with one signature if the signature line reads, for example, Individually and as President. Another way is to simply have one signature with the representative language and a second signature of just the person's name, for example, J. Smith.

The federal District Court for the Southern District of New York decided with a grant of summary judgment that a second stand-alone signature created personal liability. The Second Circuit reversed this determination noting that there were numerous references in the documents in question to a corporate representative situation and additionally that there was some ambiguity in why a second stand-alone signature was required on the document. The case was remanded to the District Court to review the document as a whole and additionally determine if evidence external to the documents (extrinsic evidence) supported a personal liability conclusion or not.

Considering how well established the signature liability rules are it is surprising that there are still ambiguous situations created by both the writers and signers of documents. If you want to avoid litigation concerning what entity or individual has responsibility for the obligations contained in the document, be careful how you sign the document.

Content concerning legal matters is for informational purposes only, and should not be relied upon in making legal decisions or assessing your legal risks. Always consult a licensed attorney in the appropriate jurisdiction before taking any course of action that may affect your legal rights.