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TexLaw, Attorney
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Experience:  Lead trial/International commercial attorney licensed 11 yrs
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business law question: a professional corporation goes out

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business law question: a professional corporation goes out of business. During its life it ran up several thousand dollars in bills to a supplier. At the start of the business relationship a credit application was filled out asking for the financially responsible party. The corporation was given. Because highly controlled medical drugs were being shipped and could only be sold to a physician - The ship to and bill to address named the company's physician owner and the corporation. All of the bills that were paid were paid solely by the corporation and never from the owner's personal accounts. The company sued the physician personally and not the corporation. Is there a defense for the physician? The lawyer for the plaintiff contends that the supplies were shipped to the doctor therefore he is responsible. The doctor contends that he never personally guaranteed the payments and disclosed in his credit application that the corporation and not he himself was financially responsible.

Thank you for your question.

This is a very interesting question and the truth is that there is not a simple answer. Without looking at the documents involved, its hard to determine the strength of the physician's case.

The physician needs to put forth the affirmative defense that there is no contract between it and the supplier. It will simply be a matter of proof and a matter of interpretation as to the actual documents underlying the supply arrangment. The fact that the credit application was signed in the name of the corporation may not in fact be adequate to relieve the physician of personal liability, if the physician signed an agreement stating that he was the purchaser and would be responsible for payment.

If there is no actual agreement, but only an order from the physician and a credit application from the company, then the court will have to decide whether there is an agreement that the company would be the party responsible to pay rather than the physician.

In other words, it is what is called a "question of fact", which must be decided by the court/jury in a trial.

It makes absolute sense that the Plaintiff is suing the physician directly, as the company is out of business and does not have any assets from which to pay the bill. The Plaintiff has to make this argument in order to attempt to recover.

The physician must strongly defend the case and show that there was never an expectation that the physician would be personally liable for payment. This may be established through the wording of the underlying documentation, as previously stated, and by conducting discovery with the supplier to see how they treat their other customers. In other words, if the physician shows that in every other arrangement that the supplier has, it is expecting payment from the company employing the ordering physician rather than the ordering physician himself, then this will establish an "industry standard" and prove the physician's case. The physician could also appoint an expert in hospital administration who could come in and testify as to this arrangement on behalf of the physician

Please let me know if you have any further questions. Please also kindly consider rating my answer positively so that I am compensated by the website for my work on your question. Rating positively does not cause an additional charge and does not prevent us from further discussing your questions.

Best Regards,

TexLaw and 5 other Legal Specialists are ready to help you
Customer: replied 4 years ago.
Thank you. Some more info .
Was a Delaware corp and the business was in NY.
The PC was never dissolved. The only executed agreements are the credit application which list the company and its EIN as the responsible party. And a second agreement written by the supplier to join a buying group for discounted prices which list only the PC and is executed on its behalf.
Despite the The company was never named in the suit. And the only payment they received was from the company and not the physician.
Thank you for the information.

That the PC is still in existence is good in that there will not be any reason that it cannot defend a lawsuit if it is properly brought into the suit.

The fact that the company is registered in Delaware does not change the analysis, as New York law will still apply here. Regardless, they are the same on this particular issue.

At this point, I would advise the physician to file a motion to dismiss/motion for summary judgment and start pressing the argument that the physician is not personally obligated on the payment. The fact that the only executed agreements are executed on behalf of the PC supports the argument in full.

Has the supplier produced any evidence supporting its assertion that the physician is personally obligated?
Customer: replied 4 years ago.

Thank you again. I believe the plaintiffs sole argument is that the physician's name is XXXXX XXXXX bill in addition to the PC and the items were received. The problem is a bit more complex. They never served the physician and the first time he was made aware of the case was when the Marshall sent him a notice to collect on the judgment.

That does complicate things.

The physician will need to file a Motion to Vacate Judgment based on the Plaintiff's failure to serve. These are really only effective if the physician can show that the Plaintiff was not truthful with the court as to the reasons that he/she was not served. If the Plaintiff served the physician in good faith under the alternative procedures allowed by the law, there may be no actual way to over turn this judgment.

The best alternative would be to hire a local attorney to file this motion, as it requires technical knowledge of local procedure, an established relationship with the judge on the case, and will require some legal research and writing to accomplish, if it is possible.