Commercial Division Blog
Posted: July 25, 2016 / Categories Commercial, Contracts, Principal and Agent
Agent for a Principal with no Legal Status Is Personally Liable for Contract
On July 12, 2016, Justice Scarpulla of the New York County Commercial Division issued a decision in Tecchia v. Bellati, 2016 NY Slip Op. 31311(U), holding that a person holding himself out to be the agent of an entity without legal status is personally liable for any contract into which he enters.
In Tecchia, the defendant (an individual named Bellati) allegedly held himself out as "the owner of Minimal USA, that he was affiliated with Minimal Cucine, an Italian bespoke kitchen designer, and that he could perform the construction improvements that" the plaintiff "sought." The plaintiff entered into a contract with Minimal USA. The defendant signed on its behalf. The plaintiff later brought an action for breach of the contract, suing the defendant individually.
The defendant moved to dismiss, arguing, among other things, that Bellati should not have been named as a party. The court denied the motion, explaining:
Under New York law, an agent who fails to disclose at the time the parties enter a contract that he is acting on behalf of a principal becomes personally liable under the contract. Further, one who acts as an agent for a principal with no legal status will be personally liable on the contract. And, a defendant asserting an agency relationship as a defense to avoid individual contractual liability has the burden of establishing the disclosure of the agency relationship and the corporate existence and identity.
Here, the Contract was signed by individual defendant Bellati over a line that bore the name "Minimal USA" and there is no indication that it was disclosed to Tecchia that Bellati was acting on behalf of corporate entity Canova instead of individually or on behalf of non-corporate entity Minimal USA. None of the documents submitted by Defendants "conclusively" establish a defense to the claims asserted against Bellati. Defendants argue that an invoice bearing the name "Canova Inc." gave [the plaintiff] reason to suspect that Bellati was acting on Canova's behalf. However, the fact that a plaintiff has reason to suspect that an individual is acting as an agent in and of itself is insufficient to relieve the agent from liability. Knowledge of the real principal is the test, and this means actual knowledge, not suspicion. Indeed, nothing short of full disclosure of the principal's status will relieve an agent from personal liability.
(Internal quotations and citations omitted).