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We've previously posted on the subject of the danger of personal guarantees when entering into contracts through a business entity. Normally, the officer/agent of the company needs to sign such an agreement in his or her capacity in the company, and not in their individual capacity in order to avoid personal liability. A recent case out of the Iowa Court of Appeals clarifies that signing in your corporate capacity isn't enough on its own to limit your personal liability.

In this case, which was handled by our own Lou Hockenberg, the defendant had signed an application for credit and signed the application as "Pres."  Right above that signature line, however, was a provision that provided the applicant was also personally liable for the debt. The Iowa Court of Appeals affirmed the judgment by stating that the the provisions of the binding agreement should not be negated by simply signing such an agreement in one's corporate capacity.

Moral of the story: Read what you sign.

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This post should be prefaced with the fact that I am an alumnus of the Univeristy of Iowa, but I will attempt to remain as objective as possible in my reporting.

Iowa State University recently finialized its contract with new Head Football coach Paul Rhoads.  The contract, linked here by the Des Moines Register, has an interesting term that is not often found in coaching contracts.  Under Article V of the contract, instances are provided that equate to "just cause" for termination, in other words, reasons the University can give to fire him.  Paragraph 2(a) of this Article specifically lists some situations that cannot be considered just cause, including:

ii) Win-loss record or public unhappiness with win-loss record; or

iii) Other general displeasure at the direction or success of the football program.

Generally, win-loss records and displeasure with the direction of an athletic program are the main reasons coaches are fired by their university employers.  It would be interesting to know at whose behest these clauses were added, and the policy behind them.  It should be noted that the contract also lists a number of "just cause" reasons to fire Rhoads, and the University would likely be able to find separate reasoning to release him besides the win-loss record of the team. 

At any rate, his job is safe for a while, even after September 12, 2009.  Go Hawks.

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In an ideal world, when a business provides a service, the person or entity benefiting from the service promptly pays the provider for that service (assuming of course, that the service was performed as the service recipient expected).  As anyone who has been in business for longer than a week can tell you, when it comes to customers paying for the services that they receive, the world is not perfect. 

Because not all customers pay as agreed, it is imperative that before performing any work the service provider must first get a service agreement signed by the service recipient.   I know that this seems obvious and I would guess that the majority of businesses do get the bulk of their agreements in writing, yet it is always the small exceptions that end up causing business owners the biggest problems. 

Now, I know that there is portion of small business owners reading this that are likely saying to themselves:  "we do business on a handshake and a person's word is just as good as any contract," and  I would agree that that is the case 95% of the time,  but it does not take too many disputes over payment to begin to negatively effect your bottom-line.  When a service has been provided yet the recipient unjustifiably refuses to pay for that service,  then the business owner has a choice to make:  either eat the costs of the service or enlist the services of an attorney.   It has been my experience that most business owners would rather shove a stick in their eye then have to choose between those two options, but whether you like it or not, this is the decision that the business owner has to make.  

As you may have guessed, I mainly talk to the latter, business owners that chose to contact an attorney, and without exception the first question I will ask my client is whether there is a contract.  The answer to that question is determinative of the likelihood of being able to recover this debt for the business owner.   

If the answer is "yes, we have a contract signed by the service recipient and I will send it to you immediately", then I feel pretty good about the client's likelihood of recovery.  Conversely, if the client answers, "no, but...", then the client's prognosis for recovery has suffered a two-fold set back, first, it will be more difficult to prove the existence of a oral agreement to the satisfaction of a court and therefore, more attorney fees and second, and I may be generalizing here, but it has been my experience that if someone is unwilling to sign a contract for a service then they are equally unwilling to voluntarily pay for that service.

Tomorrow I will continue with part 2.

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