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Connecticut Supreme Court Holds Director of a Corporate Entity Can Be Held Personally Liable for Negligent Misrepresentation


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Kryder

By Patricia Porter Kryder

Scheme unravels and contractor left unpaid
The Connecticut Supreme Court accepted the contractor’s allegations as true for purposes of addressing whether the corporation’s director could be liable under the facts alleged. The Court analyzed the following allegations: The director of the corporation entered into a contract with a construction manager to build the director’s new residence and to oversee a commercial construction project for the corporation. In exchange for a special price and below market rates for the residence, the director agreed to inflate the construction manager’s compensation through the commercial project. The director agreed to attempt to obtain lower bid estimates in order for the bank to fund the commercial construction project. Thereafter, the owner intended to provide change orders to force the bank into providing further financing for the project.

The contractor prepared sites for the commercial construction project at the direction of the corporation’s construction manager. The contractor was unaware of the scheme and was promised by the director that he would be paid for all change orders and extras. Once the site work was completed, the director alleged that the construction manager was not his agent for purposes of the construction of the commercial project, and he indicated that the construction manager did not have the authority to act on the director’s behalf.

The contractor had relied upon the director’s representations and those made by his agent, the construction manager, to his detriment when the costs of the change orders and the extra work exceeded the bank financing. In addition, the contractor relied upon the statements and actions of the director that the construction manager was the agent of the corporation for purposes of the construction for the business project.

The director’s actions and statements were made to the contractor knowing that they would be relied upon as an inducement to perform the work at the project. The contractor relied upon the false statements of the director and suffered damages when he was not paid after the director did not obtain bank financing.

Director can be personally liable for tort
The Supreme Court of Connecticut considered what form of recovery is available for the contractor. The Court reasoned that an officer of a corporation who commits a tort is personally liable to the victim regardless of whether the corporation is liable. In addition, the court considered the operation of the apparent authority doctrine by which a principal, through his acts or inadvertences, causes or allows third persons to believe his agent possesses authority to act for its principal, such as the construction manager in this case.

The Court held that where it appears from the principal’s conduct that the principal held the agent as possessing sufficient authority to embrace the act in question, or knowingly permitted the agent to act as having such authority, and the party dealing with the agent was acting in good faith and reasonably believed that the agent had the necessary authority to bind the principal to the agent’s actions, the third party can prevail against the contractor. The court held that while the contractor had a contractual claim against the corporation under the apparent authority doctrine, he also had an additional claim of negligent misrepresentation against the principal of that corporate entity—the director.

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