Two Simple Rules to Avoid Business Liability
March 24, 2014
In representing businesses for over 30 years, ranging from quotidian Mom and Pop operations to a multi-billion dollar investment and opportunity fund, I have never encountered rank and file employees who were reasonably aware of the following simple rules to limit liability exposure. And it matters not that sophisticated entity structures have been created at the behest of business lawyers and CPAs, if the people who actually implement and operate the businesses do not observe the entity structures and general business maxims.
1) UNLESS YOU ARE CUTTING A CHECK TO YOUR CHURCH, YOUR NAME HAS A COMMA AFTER IT. This is particularly true of closely held businesses, where business principals generally have little separation between their private and commercial lives. A builder/developer client (let's call him “Chauncey”), signed a recorded development plat under the “Owner” heading, as “Chauncey”—rather than naming the entity specifically created for phase 6 of his development, which was later dissolved for tax purposes. This error led to $300,000 in expert witness costs alone in resultant litigation, involving a downstream silted lake (demonstrated to be caused by an adjacent development, which had previously settled with the lake owner).
When I questioned Chauncey about the circumstances of signing the plat, he explained that the engineer didn't know which entity had been set up for that phase, and Chauncey had to sign the plat in the field and get the plat expeditiously filed so that the development could proceed (the “interest meter” rule of development). I explained that Chauncey should have written the entity name in hand on the plat, and then signed it in his representative capacity; OCGA § 13-2-2(7), of the cardinal rules of contract construction, affords the hand-written entry greater weight than the pre-printed portion of the document.
Failure to clearly delineate the entity name, and the representative capacity in which the person signs, subjects the signing party to potential individual liability. This most likely punts the issue to a jury—not at all what the client intended in creating the entity. Yeomans v. Coleman, Meadows, Pate Drug Co., 167 Ga.App. 646, 307 S.E.2d 121 (1983); Marek Interior Systems, Inc. v. White, 230 Ga.App. 518, 496 S.E.2d 749 (1998); Button Gwinnett Landfill, Inc. v. Sinnock, 193 Ga.App. 244, 387 S.E.2d 439 (1989).
NO UNFOUNDED ASSERTION IN RECEIVED CORRESPONDENCE GOES UNREBUTTED.
“In the ordinary course of business, when good faith requires an answer, it is the duty of the party receiving a letter from another to answer within a reasonable time. Otherwise he is presumed to admit the propriety of the acts mentioned in the letter of his correspondent and to adopt them.” O.C.G.A. § 24-4-23.
This is basically a codification of common sense, but places an evidentiary onus on the party receiving the communication.
Chauncey received correspondence from a particularly aggressive former New Jerseyite (an endemic trait), who had purchased a home Chauncey's company built, alleging that Chauncey had gratuitously and verbally agreed to numerous upgrades. This was obvious balderdash, as while Chauncey had built thousands of completely serviceable homes in Cobb, his affectations were definitely Old School (Chauncey would recite reverentially Donny Strait's motto from decades earlier, when asked by a home owner the length of Strait's warranty—“Until the little red truck leaves the drive way.”).
I informed Chauncey that he needed to dispute the contentions in writing, causing Chauncey to fulminate that “I don't have time for that; only Yankees and lawyers write letters.” “True enough,” I replied, “but who are you selling your houses to?” Chauncey sputtered that I should send a Go #*&^ letter, where I used different language.
Good practice warrants applying the same principle to e-mail and text messages, as they have largely supplanted Snail Mail in day-to-day business correspondence.