Recent Court Decision Reaffirms the Line Between Corporate and Personal Liability

A corporate officer who signs a promissory note on behalf of a corporation cannot be held personally responsible for the obligations of the company, according to a recent decision by the Kent County Circuit Court. In Great Lakes Floor Covering, Inc. v. James Droge Construction Company (JDCC), Laurie Droge and Jeffrey Droge as fiduciaries of the estate of James Droge, Sr., the court ruled that unless the officer signs the promissory note twice – once as an officer, and once as an individual – he cannot be held liable individually for the corporation’s obligations.

The dispute in Great Lakes arose when Great Lakes subcontracted with JDCC to perform flooring work on two projects where JDCC was the general contractor. Although Great Lakes satisfactorily performed its contractual obligations, and JDCC received full payment from the project owners, it failed to pay nearly $90,000 owed to Great Lakes. Because of the longstanding relationship between Great Lakes and JDCC, Great Lakes allowed the outstanding balance to remain unpaid for years. However, on July 1, 2009, James Droge, Sr., signed a promissory note memorializing JDCC’s obligation to pay the $90,000 to Great Lakes. JDCC made only one payment to Great Lakes on the note, and failed to make any further payments. Great Lakes then filed suit against JDCC and its principal, James Droge, Sr., as an individual, for breach of contract, violation of the Michigan Builders’ Trust Fund Act (MBTFA), account stated, and statutory conversion.

On the breach of contract claim, the court found that the promissory note signed by James Droge, Sr., on behalf of JDCC, obligated JDCC to make payments, and gave raise to an airtight claim for breach of contract against JDCC. However, the court ruled that James Droge, Sr., in his individual capacity, could not be held liable for this debt. The court cited Livonia Building Materials Co. v. Harrison Construction Co., which states that under Michigan law “an individual stockholder or officer is not liable for his corporation’s engagements unless he signs individually, and where individual responsibility is demanded, the nearly universal practice is that the officer signs twice – once as an officer and again as an individual.” Since James Droge, Sr., signed the promissory note as President of JDCC only, not as an individual, he is not personally liable for the company’s obligation to Great Lakes. The court granted summary disposition (an immediate judgment) to Great Lakes against JDCC for the breach of contract claim, and dismissed the claim against James Droge, Sr., in his individual capacity. 

One further take-away from the Great Lakes v. JDCC ruling is the court’s clear confirmation of Michigan statute of limitations periods for the various legal claims involved. The court explicitly stated that for breach of contract, MBTFA, and account stated claims, the statute of limitations period is six years. On a statutory conversion claim, the statute of limitations is three years.