PERSONAL LIABILITY VERSUS CORPORATE LIABILITY.

In this case, the debtors, McClellan and Hoyt, were, respectively, the president and secretary of Calistoga Court Club, Inc. Calistoga Court Club, Inc. applied for and received a loan for $30,420 from a predecessor in interest to Mountain America Credit Union. The loan went into default and the debtors’ corporation went out of business. Mountain America commenced an action against McClellan and Hoyt, individually, to collect the monies owing on the note. Both debtors answered the credit union’s complaint in the trial court alleging that they only executed the promissory note in their representative capacities as president and secretary of the Calistoga corporation. The debtors argued that there could only be liability against the corporation and not against them individually. Debtors indicated that the note expressly named Calistoga as the “maker” and was executed by McClellan as “president” and Hoyt as “secretary.” However, the debtors then signed another note without qualification or reference to any representative capacities.

The trial court entered an order of summary disposition in favor of the credit union and against the individual debtors for the full sum then owing in excess of $45,000. On appeal, the trial court’s judgment was upheld.

The appellate court noted that the Uniform Commercial Code, Section 3-403 provides, in part, that an authorized representative (such as an officer of a corporation) who signs his/her name to an instrument is personally obligated if the instrument neither names the person represented nor shows that the representative signed in a representative capacity. Here, debtors failure to identify their corporate capacity on the second note created personal liability. Mountain America Credit Union v. Robert McClellan and Randy Hoyt (Court of Appeals of Utah, Case No. 920217-CA).

Author: Charles R. Harroun, Attorney at Law