Consider who you loan money too and, perhaps more importantly, the manner in which your loan agreements (promissory notes) are drafted.  By way of example, in what appears to be a failed construction project in Conrad FLB Management, LLC v. Diamond Blue International, Inc., 44 Fla. L. Weekly D2897a (Fla. 3d DCA 2019), a group of lenders lent money to a limited liability company (“Company”) in connection with the development of a project.  Promissory notes were executed by Company and executed by its managing member as a representative of Company, and not in a personal capacity. Company, however, did not own the project.  Rather, an affiliated entity owned the project (“Affiliated Entity”).  Affiliated Entity had the same managing member as Company.  Once the Company received the loan proceeds, it transferred the money to Affiliated Entity, presumably for purposes of the project.

The loans were not repaid and the lenders sued Company, Affiliated Entity, and its managing member, in a personal capacity.   The lenders claimed they were all jointly liable under the promissory notes.  Although the trial court granted summary judgment in favor of the lenders, this was reversed on appeal as to the Affiliated Entity and the managing member because there was a factual issue as to whether they should be bound by the note executed on behalf of Company.

First, Florida Statute s. 673.4011(1) provides that “a person is not liable on a promissory note unless either (a) the person signed the note, or (b) the person is represented by an agent who signed the note.”    Conrad FLB Management, LLC, supra.  Affiliated Entity is a separate entity and did not execute the note.

Second, Florida Statute s. 673.4021(2) provides, “[i]f a representative signs the name of the representative to an instrument and the signature is an authorized signature of the represented person, then the following rules apply:. . . (b)…if the form of the signature does not show unambiguously that the signature is made in a representative capacity or if the represented person is not identified in the instrument . . . the representative is liable on the instrument unless the representative proves that the original parties did not intend the representative to be liable on the instrument.”   The promissory notes reflected that the managing member signed as a representative of Company, and not in a personal capacity.

While there were factual issues for the trier of fact as to whether Affiliated Entity and the managing member, in a personal capacity, should be bound by the note, the issues could have been avoided, right?  The promissory notes could have included the actual owner of the project or, at a minimum, identified the actual owner as a personal guarantor.   And, the promissory notes could have included that the managing member is also executing the notes as a personal guarantor.  The inclusion of these considerations into the loan agreement could have avoided the dilemma that the lender was faced with.  Clearly, Company was a shell that had no assets as the assets were owned by Affiliated Entity and the managing member may have been solvent, both of which are the key to collecting an unpaid note!

Please contact David Adelstein at or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.