Overturning a district court ruling, the Massachusetts Court of Appeals held that an employee could not be held liable to a vendor when the employer fails to abide by the terms of a contract because the contract, as it relates to the employee, lacks consideration.
In Yellow Book, Inc. v. Tocci, the plaintiff was the publisher of a printed phone book that sold advertising spots to businesses. The defendant, Tocci, was the office manager for the company, and on three separate occasions executed a preprinted contract for advertising services. The contract listed the company (employer) as the customer and required it to pay for the advertising in monthly installments rather than a lump sum payment. Below each signature line, were the words "Authorized Signature Individually and for the Customer” and, in fine print, was a reference to specific paragraphs in the terms of sale that were on the back of document. The terms contained language to the effect that the signer of the agreement by his or her execution, personally, and individually, assumes full performance including payments of amounts due.
The employer failed to pay Yellow Book for the advertising services, and Yellow Book sued both the employer and Tocci personally for the outstanding debt under the theories of breach of contract, unjust enrichment, and quantum meruit. Accordingly, Yellow Book contended that Tocci is individually liable under the executed agreements and the fine print.
On appeal, Tocci submitted that there was no consideration because she received nothing in return for signing the agreement. In contrast, Yellow Book argued that Tocci did receive benefits from the agreement.
The Appellate Court stated that an owner, investor, or principal of a company "who signed would certainly have a benefit from the deferred obligation, and consideration would thus be received by that person." However, here, Yellow Book failed to prove how Tocci would receive any benefit from the right of deferred payment given to her employer. The Appellate Court held:
“True, by her signature, Tocci promised to be individually liable for Pro Insulator's debt. And her misreading or failing to read the agreements is no defense. One who signs a writing that is designed to serve as a legal document, as this and its enclosure were, is presumed to know its contents . . . . But she received no compensation, from either [her employer] or Yellow Book, for this promise. No enforceable contract can be rested on such a promise as it was without consideration.”
Therefore, Tocci's motion for summary judgment that rested on the failure of consideration was allowed and the trial court reversed.
The holding in Tocci is helpful for several reasons.
- It should serve as a reminder to all that in order for a contract to be binding there must be consideration, a bargained for exchange. Without consideration, there is no enforceable agreement.
- Employees can rest easy knowing that without a personal benefit, the employee is not liable for their employer’s obligations when executing contracts on the employer’s behalf.
- Finally, if companies would like those who execute a contract on behalf of an organization to be personally liable, then the individual signing must receive a benefit.
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