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Negligent or Wrongful Conduct Can Expose Corporate Officers to Personal Liability, Wisconsin Appeals Court Recently Reaffirmed

July 12, 2005

Corporate officers and agents often are surprised to learn that they could face individual liability for actions undertaken in their official capacity as a corporate officer or agent. The legal principle behind this was recently reaffirmed by the Wisconsin Court of Appeals in a case entitled Advantage Leasing Corp. v. NovaTech Solutions, Inc. That case involved claims asserted against the president of a company for alleged intentional misrepresentations to a leasing company. The defendant represented that her company would be delivering certain goods to a customer that was obtaining financing from the plaintiff leasing company. The goods were never delivered to the customer. When the customer defaulted, the leasing company sued the president who made the misrepresentations, as well as the president’s corporation. The president attempted to shield herself from personal liability by hiding behind the corporate entity.

The Court of Appeals held that the president could be personally liable, stating: "...a corporate officer or agent may be held personally liable for his or her own tortious conduct, regardless of that person’s position in the corporation and regardless whether the action was taken on behalf of the corporation... An individual is personally responsible for his own tortious conduct. A corporate agent cannot shield himself from personal liability for a tort he personally commits or participates in by hiding behind the corporate entity; if he is shown to have been acting for the corporation, the corporation also may be liable, but the individual is not thereby relieved of his own responsibility."

A corporate officer or agent reading this may ask, "What good is it to be incorporated? I thought that the corporate entity would protect me."

The fact is that there are several advantages to having a corporate structure for your entity. The corporate entity will protect an owner, officer or agent of a corporation for acts committed by others on behalf of the corporation. The corporate entity also will protect an owner, officer or agent of a corporation for certain contractual obligations undertaken on behalf of the corporation—as long as they are not tortious in nature, such as an intentional, wrongful act or a negligent act that causes injury to another.

It is generally easier for corporate officers or agents to accept the fact that if they are involved in an automobile accident during the course of their employment, they will be liable even though the corporation’s insurance company may ultimately pay for any damages resulting from the accident. Most corporate officers or agents seem to lose sight of this concept when the alleged wrongful acts involve direct business actions such as making representations—hiring, firing, etc. —rather than peripheral activities such as driving a car. The fact is that under the law, we are all responsible for our own individual conduct—whether intentional or negligent—regardless of whether that action is on behalf of ourselves or on behalf of a corporation. The only difference is that if the action is on behalf of the corporation, the corporation may be jointly liable for the action and the resulting damages. If the misrepresentation or wrongful act is found to be outside of the officer’s or agent’s scope of authority, the corporation might not be liable, but the officer or agent would still be individually liable for any damages.

At times, corporate officers and/or agents may be tempted to be careless or perhaps even untruthful with respect to statements or representations they make during the course of their business activities—whether for the benefit of their own corporation or for the benefit of other business contacts or entities. The Advantage Leasing case reminds us that such actions may result in the individual, as well as the corporation, being held liable for the damages suffered as a result.

The moral of the story is that corporate officers and agents should be as careful with respect to representations and actions that they undertake during the course of business as they are in driving the company car. Damages resulting from negligent and/or wrongful conduct may result in liability to the company as well as personal exposure to themselves.

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