A New York state trial court has granted a corporate president’s motion to dismiss a case against him personally for payments due under his corporation’s purchase agreement (the “Agreement”) and promissory note (the “Note”). The plaintiffs, Robert Brown and RG Group LLC (“plaintiffs”), filed suit against both Noble, Inc. (“Noble”) and its President, Thomas Caruso, after Noble allegedly failed to make payments due under the Agreement and Note. Caruso moved to dismiss the action against him individually arguing that, although he was a party to the Agreement and signed it in his personal capacity, he did not personally undertake therein the contractual obligation to pay, as supported by the fact that he had signed the Note only in his corporate capacity. The court agreed, finding that the contractual obligation to pay was solely on the corporation, not Caruso. Brown v. Noble, No. 600876/10, 2010 WL 4941999 (N.Y. Co. 2010).
In mid-2009, plaintiffs entered into the Agreement with Noble and Caruso by which Noble purchased accounts receivable from plaintiffs. Caruso was a named party in that Agreement in his personal capacity and also was a personal signatory to that Agreement. Noble, too, was a party to that agreement. As to the Note, Caruso was not named as a party and signed it only in his capacity as Noble’s President.
Noble allegedly failed to make the payments due under the Agreement and Note, and plaintiffs filed suit on April 7, 2010. In the complaint, plaintiffs asserted six causes against both Noble and Caruso (1) breach of contract, (2) unjust enrichment, (3) breach of implied covenant of good faith and fair dealing, (4) promissory estoppel, (5) fraud and misrepresentation and (6) indemnity. Caruso moved to dismiss, arguing that, although he was named as a party in the Agreement and signed it in his personal capacity, the terms of that Agreement imposed no payment or other obligations on him. Rather, the Agreement and Note imposed the payment obligation solely on the corporation. Since the complaint was based on the premise that a contractual relationship existed with Caruso personally, he argued that plaintiffs failed to state a claim for relief against him individually.
The Merits of the Motion to Dismiss
On Caruso’s motion to dismiss, the court reviewed the complaint to determine whether any of the six causes asserted against Caruso individually stated a claim for relief. Even under New York law’s liberal pleading standards, the court found that all of plaintiffs’ causes of action against Caruso must be dismissed.
The court found that there was no actual contractual relationship formed between Caruso and the plaintiffs because, although named individually as a party to the Agreement and a signatory to that Agreement, he received no consideration in his personal capacity for executing it, an essential element for the formation of a contract under New York law. As Caruso neither received any personal benefits nor incurred any personal obligations under the Agreement or Note, and as there were no other allegations in the complaint establishing his personal liability for the payments, plaintiffs failed to establish a contractual relationship with Caruso individually, and failed to state a claim for breach of contract. The court noted that, to bring a claim against Caruso individually, plaintiffs would effectively need to “pierce the corporate veil,” but the complaint contained no factual allegations in this regard.
The court summarily dismissed the remaining claims, finding the complaint plainly insufficient to assert any cause of action against Caruso individually. The court noted, for example, that throughout the complaint plaintiffs “appear to attempt to assign upon the defendants equal liability for the alleged breaches of the Note and the Agreement, simply by grouping Noble and Caruso together.” Without specific factual allegations against him individually, the court found, there was no theory under which Caruso could be held liable to plaintiffs.
This case presents a rather typical fact pattern regarding an officer of a corporation signing a corporate contract in his individual capacity. Attorneys drafting such agreements need to take care that an individual officer is not signing in this individual capacity, unless, of course, the deal is that the officer is assuming personal responsibility and potential liability. As this decision makes clear, under New York law, even where a corporate officer signs a corporate contract in his individual capacity, he may avoid personal liability where he did not personally undertake the contractual obligations that were allegedly breached. Moreover, unless the individual obtains some personal benefit under the agreement, the court may find an absence of the consideration needed to form a binding contract.