Employee of LLC, contract dispute

What is the name of your state?What is the name of your state? IL

I am an employee of a struggling online media company. I am responsible for purchasing media on behalf of the company, and inadvertantly signed an Insertion Order personally guaranteeing payment (cleverly hidden clause). Now my company is stalling on paying its bills as they struggle to stay in business. I'm worried that I may get stuck holding the bag. As far as I can tell, the shareholders are protected by the LLC, and I am the only one responsible for paying the bill. Am I right? Is there anything I can do? What if I quit and am no longer employed there? Help! The vendor is threatening a lawsuit.

-Worried

Ouch...

You should certainly see a lawyer as soon as possible. Personal gurantees of business credit are very dangerous for exactly the reason you've run into. Even if you were a partner in the LLC, you'd still be personally responsible for this debt if the company goes belly up.

Since you're not an officer (right?) you may have a defensible position...but I'm pretty sure you're stuck. I'm guessing your only recourse would be to have a lawyer sue the owners of the company for any debt you must pay...

That's what I thought

You're correct, I'm not an officer in the company. A lawsuit to recover any money I have to pay looks like it will be my only option.

What is your position in the company, do you have the authority/access to write checks? How much is owed to this vendor? Have they brought up the personal guarantee?

My first observation, without reading the agreement, is that the guarantee may be held invalid because you didn't receive anything for it (consideration). You need a lawyer who is familiar enough with civil law in your state to tell you whether that theory will hold up. It will here in WI.

Followup

Good question. I am the VP of Business Development, non-equity holder, and do not have authority to write checks. We owe the vendor around $20,000 for media that has been delivered and accepted. The invoices are 30-90 days past due (there are 3), and since my employer has been playing games with cash flow and not paying several bills, the vendor has threatened a lawsuit to both the company and myself. I've been told by a number of people that the contract will hold up and I am liable.

I did call a lawyer today, as well as consult a friend in the business who is also a lawyer. My friend suggested that I ask the company to sign a document that would indemnify me from any claims as well as agree to defend me and assume all liability in the case of a lawsuit. I thought this was a good idea and he helped me draft an agreement that my CEO then signed. The lawyer agreed with this strategy, but wanted a retainer of $600 to start the document. I'd rather not spend that money right now as I'm planning to leave the company, it's a sinking ship. My only other worry at this time is what happens if the company goes under. Does the agreement I created today hold any value?

I've pasted it below....


FOR GOOD AND VALUABLE CONSIDERATION RECEIVED, XXXX (“XXXX”) agrees to indemnify, save harmless and release XXXX employee John Doe, and his successors and assigns (collectively “Employee”), from any claim, action, liability, loss, damage or suit (“Claim”), arising now or ever arising, whether now known or unknown, from the insertion order agreement between XXXX and Vendor, executed by Employee, with the intention that Employee shall have no personal liability whatsoever thereunder despite anything therein to the contrary. A copy of the insertion order agreement is attached hereto and made a part hereof.

In the event of any Claim, Employee shall provide XXXX reasonably timely written notice of same, and thereafter XXXX shall, at its sole cost and expense, defend, protect and save harmless Employee against any said Claim or any loss or liability thereunder.

In the further event XXXX shall fail to so defend and/or indemnify and save harmless Employee, then in such instance Employee shall have full right to defend, pay or settle said Claim on his own behalf without notice to XXXX and with full rights to recourse against XXXX for all fees, costs, expenses and payments made or agreed to be paid to discharge said claim. Upon default, XXXX further agrees to pay all reasonable attorney's fees incurred by Employee to enforce this agreement.

This agreement shall be limited to the Claim and unlimited as to duration.

This agreement shall be binding upon and inure to the benefit of the parties, their successors, assigns and personal representatives.

Well...

I'm not a lawyer, but, if the CEO has indeed signed this document, then I would say you've gone about as far as you can without paying a lawyer.

Will this document protect you? Hard to say. If this were a credit card debt, then the CC company and the collection agencies that they would get to try to collect would probably ignore it until it was tested in court. Collectors tend to work mostly on intimidation...in other words, their first course of action would be to hassle YOU into paying.

All in all, I'd say this is all you can do until your retain counsel. Wait and see what develops...

Actually, this agreement is worthless. The corporation cannot change a contract between two parties in which it is not, itself, a party. So, while this agreement might give you a nice warm fuzzy feeling, it does nothing to alleviate your responsibility to a contract signed by a third party.

So, unless you have a copy of the contract you signed with the vendor and can post the relevant part of THAT contract, you're Christmas Goose is well past cooked.

1. Is my corporation trying to change the contract? They're just agreeing to take responsibility for my liabilities, right?

2. My corporation is listed in the Insertion Order as the advertiser, so they are a part of the contract.

I'm not sure what parts of the Insertion Order you need to see, but I'll post a few sections:

"This Insertion Order is subject to the attached Terms and Conditions, the terms of which are hereby incorporated and made a part of this Insertion Order. The signatory of this Insertion Order: (A) represents that he/she has read, understands, and agrees to the terms of such Terms and Conditions; and (B) agrees by executing below that he/she is personally guaranteeing the payment of all amounts which will become due under this Insertion Order."

"1. Effectiveness of Insertion Order. An Insertion Order shall be binding upon Advertiser when such Insertion Order is executed by the Advertiser and received by Vendor"



Anyway, if a lawsuit is initiated I'll retain a lawyer and see where we end up. I'm not sure what else I can do right now other than work on getting my company to pay its bills.

1. Is my corporation trying to change the contract? They're just agreeing to take responsibility for my liabilities, right?

Click to expand...

Which is a separate issue from the original contract.

My corporation is listed in the Insertion Order as the advertiser, so they are a part of the contract.

Click to expand...

Which does not limit your responsibility. The vendor can sue both or either party to the contract.

Also, according to the clause in the original contract, YOU are responsible for the payment, NOT the corporation.

So, my suggestion, since I can't possibly know what the entire contract says, is to take it to a local attorney for an opinion along with your 'agreement'. I have a feeling you won't like the answer.