• Practice Pointer - Protect Yourself from Personal Liability
  • August 29, 2012 | Author: Maria Di Stravolo Elliott
  • Law Firm: Barley Snyder - Lancaster Office
  • In our February 2011 Construction Law Briefs, I wrote a practice pointer about choosing the right entity for your construction business (see website link http://barley.com/publications/article.cfm?Article-ID=555). Once you have chosen the right entity for your construction business, you will then need to correctly identify this entity in construction contracts and refer to this entity during the construction job in order to protect yourself from personal liability.

    When you prepare your construction contracts (or any contract for that matter), be sure that you identify your entity in both the beginning paragraph or section of your contract and on the signature page. Even though you may sign the contract on behalf of your entity (either as president or managing member), be sure that you are not named individually as the contractor or subcontractor. If you do, a court will find you personally liable for the contract, which means that your personal assets (like your home) will be subject to any judgments that may be entered against you.

    More importantly, even if your entity is correctly identified in the contract, you may still be exposed to personal liability depending on your individual conduct during the construction job, that is, whether you assume personal liability as the agent for the business. For example, be careful not to say, “I personally guarantee that the job will be done right” or “I will take care of it and will take care of you”. Statements like that, depending on the circumstances, can expose you to personal liability if an owner sues you (and your entity) for construction defects.

    In one case, a Pennsylvania court found that a managing member of a construction business, acting as the agent for the business, was personally liable since he used similar statements to assure his clients that the jobs would be done correctly. Such statements were made during several meetings with the homeowners since there were recurring building deficiencies during the construction jobs. See Bennett v. A.T. Masterpiece Homes, 2012 PA Super 60, 40 A.3d 145 (2012). The court noted that such statements were made with the goal of securing the homeowners’ continued performance on the contract and the managing member voluntarily made the promises, without ever distancing himself from such statements until he was sued!