News & Noteworthy

Authored - NJ Contract Law Update - Breach of Contract by a Professional May Not be Shielded by the Corporate Veil
Clark Alpert Explains How to Proactively Face Such Litigation
MAY 23, 2012 | Windels Marx - Commercial Litigation

An agent for a disclosed principal is insulated from personal liability for contractual claims. Looman Realty v. Broad Street National Bank, 32 N.J. 461, 476 (1950). That proposition was recently reinforced in Lexins, LLS v. Powerplace Software, 2012 WL 1537431 (N.J.App.Div. May 3, 2011) (any contractual language supposedly suggesting personal liability must stand clear of an individual's signature as officer or agent of entity).

However, this broad principle gives way, or certainly can be easily circumvented, when the individual defendant is a professional. In that circumstance, the professional may well have individual liability for professional negligence, even though the role of the professional may be conceptually indistinguishable from other contractual settings in which the agent has no personal responsibility whatsoever to the other contracting party.

This exception was reaffirmed in First American Title Ins. Co. v. Semester Consultants, Inc., 2012 WL 1033344 (N.J.App.Div. March 14, 2012), which held a licensed professional engineer personally responsible for deviations arising under a contract, notwithstanding the fact that the contract was entered into with the corporate defendant, Semester Consultants Inc. As the Court explained:

  • A corporate subject to individual liability for his negligence if he owes the plaintiff an independent duty imposed by law... [This includes] "[o]ne who undertakes to render services in the practice of a profession or trade [,] [because such a person] is required to exercise...skill and knowledge..." [p*4, quoting Levine v. Wiss & Co., 97 N.J. 242, 246 (1984)].

Proactive Considerations

There are a number of proactive considerations to evaluate when faced with litigation of this sort:

  1. If the industry in question is not a traditional profession (such as law or medicine), consider just how far the concept of "profession or trade" extends.
  2. Consider the presence of professional insurance, and appropriate and timely notices.
  3. If a Consumer Fraud Act (CFA) count is alleged, consider case law that learned professionals, while they may have the vulnerability set forth above in terms of lacking contract insulation, may also have immunity from the CFA. (The question of congruence between contract vulnerability and CFA immunity is beyond the scope of this article.)

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

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