The LLC Member Who Signed Personally
Rosa and Tom formed a limited liability company, GreenLeaf Supply LLC, to sell garden equipment. Their operating agreement says members are not personally liable for company debts. Rosa signed a supply contract with a vendor, Harvest Tools Inc., writing "GreenLeaf Supply LLC" under her signature but also signing her own name without any "as member" or "on behalf of" designation. The contract's signature block listed "GreenLeaf Supply LLC" as buyer. When GreenLeaf failed to pay a $48,000 invoice, Harvest sued both the LLC and Rosa personally. Rosa argues the operating agreement shields her and that the vendor knew it was dealing with the LLC. Harvest points to the signature and to a clause in the contract stating that the signatory "guarantees payment." Tom, meanwhile, had orally promised the vendor that "we'll make sure you get paid" during negotiations. Harvest also seeks to pierce the LLC veil against Tom, alleging he commingled funds.
1. Is Rosa personally liable on the contract? Analyze the signature, the guarantee clause, and the operating agreement.
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Personal liability turns on the contract's language and the signature, not the operating agreement alone.
- Operating agreement: It binds the members internally but does not bind third parties like Harvest. It cannot override a personal guarantee.
- Signature: Rosa signed her own name without a representative designation. Under general contract principles, an ambiguous signature can support personal liability, especially where the signature block named the LLC but Rosa's signature was unqualified.
- Guarantee clause: The clause stating the signatory "guarantees payment" is the strongest evidence against Rosa. If she signed the contract, she likely assumed a personal guarantee, regardless of the LLC designation.
- Vendor's knowledge: Harvest's awareness that it dealt with the LLC helps Rosa on the underlying debt but does not erase an express guarantee.
Conclusion: Rosa is likely personally liable because of the guarantee clause and her unqualified signature. The operating agreement does not protect her against a third-party guarantee. She may have a contribution claim against the LLC or Tom.
2. Can Harvest pierce the LLC veil against Tom based on commingling? What must it show?
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Veil piercing is extraordinary relief and requires more than a debt.
- Standard: Harvest must show the LLC was used as an alter ego - commingling of funds, failure to observe formalities, undercapitalization, or fraud - and that honoring the entity would work an injustice.
- Commingling: If Tom used LLC accounts for personal expenses or paid personal bills from company funds, that supports alter-ego treatment. Harvest needs evidence, not just an allegation.
- Oral promise: Tom's statement that "we'll make sure you get paid" is likely too vague to create a personal guarantee. It lacks definite terms and consideration running to Tom personally. It may support an estoppel theory only if Harvest relied to its detriment.
- Burden: Harvest bears the burden and must show a wrong beyond nonpayment.
Conclusion: Veil piercing against Tom is possible but requires concrete proof of commingling and injustice. The oral promise alone is insufficient. If Harvest proves commingling, Tom may be personally liable; otherwise, only the LLC and Rosa (on her guarantee) are liable.