Benjamin Plumbing, Inc. v. Barnes
162 Wis. 2d 837, 470 N.W.2d 888, 1991 Wisc. LEXIS 481 (1991)
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Rule of Law:
An agent who contracts on behalf of a partially disclosed principal is personally liable on the contract if the contracting party has no notice of the principal's corporate identity. Statutory immunity for directors of nonprofit corporations does not apply to contractual liability that does not arise solely from the individual's status as a director.
Facts:
- In 1987, William K. Whitcomb contacted Benjamin Plumbing, Inc., about doing plumbing work for a canning project for the "Response to Hunger Network" (RHN) on the Mendota State Hospital grounds.
- On May 5, 1987, Whitcomb sent a letter to Benjamin Plumbing's general manager, Donald Knapp, requesting a "rock bottom" price for the work, signing as "William K. Whitcomb, For Response to Hunger Network," but the letterhead also identified "National Council of the Churches of Christ in the United States of America, CHURCH WORLD SERVICE."
- On June 20, 1987, Knapp sent Benjamin Plumbing's price quotations to "Response to Hunger, To Whom It May Concern."
- On July 9, 1987, Whitcomb accepted Benjamin Plumbing's rates, authorized work, and signed as "William K. Whitcomb, Canning Committee ā RHN" on a letterhead captioned "RESPONSE TO HUNGER NETWORK."
- Benjamin Plumbing completed the work, but only received $5,000 of the final bill, which amounted to $10,603.66, with the total bill's appropriateness not disputed.
- RHN was, in fact, a Wisconsin corporation formed under Chapter 181 of the Wisconsin statutes.
Procedural Posture:
- Benjamin Plumbing, Inc. filed an action against William K. Whitcomb individually (and two other members of RHN individually, and RHN as an unincorporated association) in the circuit court for Dane County, alleging joint and several liability for breach of contract.
- Benjamin Plumbing, Inc. filed a motion for summary judgment.
- The circuit court for Dane County, George A.W. Northrup, circuit judge, granted summary judgment, dismissing the action, finding that Benjamin Plumbing should have been on notice it was contracting with a corporation (RHN) and not Whitcomb individually.
- Benjamin Plumbing, Inc. appealed the circuit court's summary judgment to the Wisconsin Court of Appeals.
- The court of appeals reversed the circuit court's summary judgment as to Whitcomb, holding he was liable as an agent for a partially disclosed principal, and rejected his defense of statutory immunity under sec. 181.287, Stats. (The court of appeals affirmed the judgment as to the other defendants).
- William K. Whitcomb petitioned the Supreme Court of Wisconsin for review of the court of appeals' decision.
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Issue:
Does an agent incur personal liability on a contract when the other contracting party was unaware of the principal's corporate status at the time of contracting, and does statutory immunity under sec. 181.287, Stats., protect a corporate director from such liability if it does not arise solely from their status as a director?
Opinions:
Majority - Heffernan, Chief Justice
Yes, an agent is personally liable when the contracting party lacks notice of the principal's corporate status, and no, statutory immunity under sec. 181.287 does not protect a director from such liability. The court affirmed the court of appeals, holding Whitcomb, as an agent for a partially disclosed principal, is liable on the contract. Under common law agency principles, an agent is considered a party to the contract and liable for its breach when the principal is partially disclosed, meaning the other party knows an agent is acting for a principal but has no notice of the principal's corporate identity. The court found that the undisputed facts did not raise a reasonable inference that Benjamin Plumbing had actual or constructive notice of RHN's corporate status at the time of contracting. It is the agent's burden to prove disclosure of the principal's corporate status, and Benjamin Plumbing had no duty to inquire. The court emphasized that the mere use of a trade name like "Response to Hunger Network" without an "Inc." notation was insufficient disclosure, as RHN could have been an unincorporated association (whose members would be personally liable) rather than a corporation (which offers limited liability). Whitcomb's liability stemmed from his failure to disclose, not from wrongdoing that would trigger piercing the corporate veil. Furthermore, the court concluded that sec. 181.287, Stats., which provides immunity for directors of nonprofit corporations for duties arising "solely" from their status as a director, does not apply to Whitcomb's contractual liability. This liability arose from his role as an agent for a partially disclosed principal, a role any authorized employee could fulfill, and not solely from his status as a director. The statute is strictly construed against abrogation of common law agency principles, and its language primarily addresses breaches of fiduciary duty to the corporation, not contractual liability to third parties.
Dissenting - Shirley S. Abrahamson, J.
The case cannot be decided as a matter of law on summary judgment because genuine issues of material fact exist regarding Benjamin Plumbing's notice of the principal's corporate identity and its intent to contract. The dissent acknowledged the general rule that an agent and a partially disclosed principal are inferred to be parties to a contract, but noted that this inference can be overcome by clear language that the agent intends to assume no liability. The specific documents show Benjamin Plumbing addressed its communications to "Response to Hunger Network" or "To Whom It May Concern," and Mr. Whitcomb's name did not appear on documents Benjamin Plumbing sent to RHN. The conflicting affidavits, with Benjamin Plumbing asserting individual contractual liability and Whitcomb asserting he acted solely on behalf of RHN, Inc., demonstrate factual disputes and differing reasonable inferences from the undisputed facts, making summary judgment inappropriate and necessitating a trial.
Analysis:
This case clarifies crucial aspects of agency law and corporate liability, particularly for nonprofit entities. It firmly establishes that agents bear the affirmative burden of disclosing their principal's corporate status to avoid personal liability on contracts; merely using a trade name is insufficient. This impacts agents by requiring explicit communication of corporate identity in all dealings. The decision also narrowly construes director immunity statutes, limiting their application to breaches of duties arising solely from directorship, thereby preventing their use as a blanket shield against common law contractual liability. This interpretation ensures that protective legislation does not inadvertently abrogate established agency principles, maintaining a balance between fostering corporate governance and holding individuals accountable for their contractual representations.
