In Thomas Grady Photography, Inc. v. Amazing Vapor, Ltd., 918 N.W.2d 853 (Neb. 2018), the Supreme Court of Nebraska held that owners of a closely held company can be found personally liable for a breach of contract if they fail to disclose to the counterparty their capacity as agents of a corporation.
Plaintiff Thomas Grady Photography, Inc. entered into two oral contracts for photography services. Defendant Amazing Vapor, Ltd. was a closely held company formed and owned by defendants Manuel Guillermo Calderon and Thomas J. Anderson.
Grady Photography brought a breach of contract action against all three defendants, based on their failure to pay $2,400 invoiced for services. The Douglas County, Nebraska court entered a default judgment in favor of Grady Photography against, among others, Amazing Vapor and Calderon. Defendant Anderson, however, denied the allegations against him. After trial, the court found Anderson individually liable for the debt. Both the district court and the Supreme Court of Nebraska affirmed the ruling regarding personal liability.
In reaching its decision, the Supreme Court rejected Anderson’s attempt to frame the oral contracts as agreements between Grady Photography and Amazing Vapor, as a corporate entity, to the exclusion of Anderson individually. The Court found it important that “Grady believed he was contracting with Calderon and Anderson.” Id. at 857. The Court also noted that “it is the agent’s duty to disclose his or her capacity as an agent of a corporation if the agent is to escape personal liability for contracts made, and in the absence of such disclosure, the agent bears the burden of proof of showing that the contract was made while acting in a corporate, not individual, capacity.” Id.
The Court was persuaded by “uncontradicted testimony at trial [ ] that neither Calderon nor Anderson disclosed Amazing Vapor’s incorporated status during discussions leading up to the agreements.” Id. The Court also highlighted text messages in which Anderson referred to Calderon as his “partner,” and pointed to the wording of invoices prepared by Grady Photography, as indicia that, as far as Grady Photography was aware, it was doing business with Calderon and Anderson as individuals.
Thomas Grady Photography, Inc. delivers a word of caution for owners of closely held companies. When communicating with potential parties to a contract, such owners should clearly disclose both the nature of their corporation and make clear that that the entity itself is entering into the contract, because failure to do so could lead to personal liability in the event of breach.
At Novack and Macey, we have extensive experience advising shareholders involved in closely held company disputes, as well as advising companies on how to avoid disputes in the first place. For more information about our services, please contact Carl Johnson at 312.419.6900 or firstname.lastname@example.org.