(summary)

Sometimes you may become a manager or an employee with the authority to sign business checks for company business. You may leave or continue working with a company and are surprised to discover that some of the checks you signed have been returned without sufficient funds at the check cashing machine. This case explains the contradiction established by the Court of Cassation’s rulings regarding the discrepancy between the liability of a limited liability company and the personal liability of the check signatory, whether an employee or a lawyer. The Court of Cassation’s ruling in the case below provides an example that illustrates the answer to these questions:

Case Summary:

Sometimes you may become a manager or an employee with the authority to sign business checks for company business. You may leave or continue working with a company and are surprised to discover that some of the checks you signed have been returned without sufficient funds at the check cashing machine. This case explains the contradiction established by the Court of Cassation’s rulings regarding the discrepancy between the liability of a limited liability company and the personal liability of the check signatory, whether an employee or a lawyer. The Court of Cassation’s ruling in the case below provides an example that illustrates the answer to these questions:

Case Summary:

• Manager (A), while working for Limited Liability Company (B), signed 7 checks totaling AED 1,577,000/- in favor of ETH Company (C) in accordance with the business transactions between the two parties. Company (G) presented the checks to ETH Bank and found that the said checks had no balance.

• Company (C) entered into preventive attachment – ​​Abu Dhabi – to prevent Company (B) from disposing of the company’s shares, movables or stocks, and filed a commercial lawsuit – Abu Dhabi – requesting that Director (A) and Company (B) be obligated to pay the sum of 1,577,000 dirhams and the legal interest from the date of filing the case until full payment. The Court of First Instance issued a judgment obligating Director ((A) and Company (B) jointly to pay the sum of 1,577,000 dirhams in addition to a delay of 5% from the date of filing the case until full payment and the validity of the preventive attachment, provided that the Director is proven to be accused of a criminal offense in a criminal case to examine the outbreak.

• Director (A) and Limited Liability Company (B) appealed the court’s judgment to a higher court – the Court of Appeal – Abu Dhabi – which ruled to confirm the judgment of the Court of First Instance.

Challenges:

Director ((A) and Company ((B)) appealed the court’s ruling in a higher court, namely the Court of Cassation, on the basis of some challenges, which are: –

1 – A limited liability company is only liable to the extent of the company’s capital provided by its partners, as specified in the articles of association.

2 – The director’s personal liability is subject to a number of conditions specified by the Commercial Companies Law, which are: –

• A- Failure to mention the phrase “limited liability company” in the official contracting and/or corporate documents and/or failure to mention the company’s capital in its official documents, and as a result, the manager is personally responsible for the company’s obligations.

• B- Violation of the rules of advertising and establishment in accordance with the provisions of the Commercial Companies Law, and as a result, the partners are personally liable for the company’s obligations.

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Results:

The Court of Cassation decided the following before issuing its decision:

• 1 – The law originally stipulates that the attorney in fact (Director A) is not personally liable for the obligations arising from the act he performs within the framework of his agency on behalf of the director (Company B) – the director is the attorney in fact acting on behalf of the limited liability company.

• 2 – The legislator who is interested in adding special protection to the check as a payment instrument which is considered money has exceeded this rule in effect in Article 559/2 of the Commercial Transactions Law, which the lawyer is – in fact – personally responsible for paying the value of the check issued in the name of the manager.

• 3 – This liability shall not be waived unless he proves that the principal had a withdrawable balance at the time of issuing the check. If he is unable to prove this, he shall be liable to those entitled to the value of the check.

• The company held that, according to the above, the judgment issued obligating the manager ((A) and the limited liability company (B) jointly to pay the value of the check of 1,577,000 UAE dirhams is correct as the manager signed the checks, which indicates that they do not have a balance, and these are sufficient reasons for the validity of the judgment issued by the courts of first instance and the courts of appeal.

Our comment:

You always have during your business and issuing checks on behalf of third parties to obtain proof of sufficient funds in the company account at the time of issuing the check, you must keep this proof with you as it may not be possible to obtain it at a later time, in this regard, an electronic message or electronic statement of the company account should be sufficient.

Lawyer and Legal Advisor

Mr. Mohamed Nour El Din