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O’Brian v. Alvarez

A-615-02T3 (N.J. Super. App. Div. 2003) (Unpublished)

LIMITED LIABILITY COMPANIES; AGENCY—When a person holds himself or herself out to be a partner or an owner of a business and it turns out that he or she is only an employee of a limited liability company, that person can be liable for the debts incurred while making such representation and if the debt is contracted before the company is formed, that person can be liable as a promoter.

This case presented the issue as to whether an agent can be held liable for the debts of the principal when a third party reasonably believed the agent to be a partner or owner and not merely an employee. In this case, a graphic designer provided extensive services to a new restaurant. The designer was unaware that the restaurant was owned by a limited liability company. Based on her meetings with the agent and the “text” provided to her for the project, the designer believed that the agent was indeed a partner or co-owner of the restaurant. The designer only discovered that the restaurant was owned by a limited liability company as she was preparing to file suit for the fees she was owed. The agent claimed that he was merely an employee and that he never represented to the designer that he had an ownership interest. The lower court found that the agent did nothing to dissuade the designer from believing that he was the owner, since the designer supplied all the work to him, received comments from him, and returned the final product to him. Therefore, since he led the designer to believe he was an owner, he was responsible for the debt. The lower court also concluded that because the contract was signed before the limited liability entity was formed, the agent was considered a promoter. A promoter is liable for a debt if he fails to disclose that another person or entity will be responsible for the debt contracted within the scope of the agency. The Appellate Division affirmed.

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