Personal Liability for Contractor’s Officer :: The Construction Management Pro

Personal Liability for Contractor’s Officer

Never shy about expanding exposure to lawsuits, the New Jersey Supreme Court has decided that a company’s officers and employees can be personally liable for a corporations’s technical violations of a law. While the decision interprets the New Jersey Consume Fraud Act (CFA), one part of that analysis could pave the way for further undercutting the limited liability advantages of corporations and LLC’s.

Corporate officers and employees have always been personally liable for their negligence or other “torts” caused during employment. But, some laws also impose liability without fault. Under the CFA regulations involved in this case, home remodeling contracts and product substitutions must be in writing. Here, a contractor had orally contracted to build a pool’s retaining wall and may have substituted a different type of fill for the specified variety without written approval. Later, the wall bulged and cracked. A jury found the contractor at fault for CFA violations and the wall deficiencies, while the court imposed triple damages and counsel fees under the CFA.

The Supreme Court decided that the contractor was automatically liable under the CFA because there was no written contract. The Court then decided that the individuals who engaged in the making of the oral contract could be personally liable regardless whether they caused the actual harm. As the Court stated, a company officer could be liable for the damage if the failure to use a written contract was part of the business’s course of conduct. Allen v. and A Bros., Inc., A-30-10.

Lots of laws will impose liability without fault. For example, a contractor can be liable for another party’s attorneys fees expended to discharge a construction lien if the lien filing was not based on a written contract. Courts could use this decision’s reasoning to assign those costs to the person who signs the lien even if the signer did not know of this written contract requirement. Or perhaps this decision will be limited to the CFA and “public interest” laws? The Court left the details for the future, so more lawsuits will follow.

 

Richard m. Baron

The Law Firm of Richard M. Baron

300-3 Route 17 South, Ste. 6

Lodi, NJ 07644

973-473-5200

 

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