Jensen v. Alaska Valuation Service, Inc.
688 P.2d 161, 1984 Alas. LEXIS 343 (1984)
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Rule of Law:
The consistent use of corporate checks, by itself, is not sufficient as a matter of law to inform a third party of a company's corporate status and an agent's representative capacity; whether such use provides adequate notice is a question of fact to be determined by examining all surrounding circumstances at the time of the transaction.
Facts:
- Arthur Jensen, Inc. was an Alaska corporation, incorporated in 1972, engaged in the housing construction business, with Arthur Jensen owning over half its stock and serving as its president.
- Alaska Valuation Service (AVS) conducted appraisals for Arthur Jensen from the early 1970s until 1979.
- On July 19, 1979, Arthur Jensen ordered by telephone appraisals on five single-family homes from AVS, to be made from plans and blueprints; AVS's president, Alfred Ferrara, recorded the order as being for 'Art Jensen'.
- Invoices for these appraisals were later sent to 'Art Jensen, Jensen Builders' at the corporation’s Anchorage post office box.
- Arthur Jensen testified that he had always paid for previous appraisal services with the corporation’s checks, introducing four checks dated prior to July 1979 into evidence.
- Arthur Jensen testified that he placed signs with the corporation’s name on each of the houses he built, but conceded that appraisals were completed before construction on the houses began.
- AVS's records did not mention Arthur Jensen, Inc. until late 1979, when Jensen specifically informed AVS of his company’s corporate status.
- Alfred Ferrara testified that he had not been aware Jensen was doing business as a corporation until late 1979, assuming it was a sole proprietorship because it was 'not typical' for builders he dealt with to be corporations.
Procedural Posture:
- In 1982, Alaska Valuation Service (AVS) filed a complaint for $823.00 against Arthur Jensen in small claims court.
- The small claims court concluded that the use of corporate checks did not provide AVS with adequate notice of Arthur Jensen’s corporate agency and awarded AVS $831.00.
- Arthur Jensen appealed the small claims court's decision to the superior court and requested leave to submit contractor’s plans to supplement the record, alleging they identified Arthur Jensen, Inc.
- The superior court affirmed the district court ruling without mentioning the request to supplement the record, leading Arthur Jensen to file a petition for hearing with the Alaska Supreme Court.
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Issue:
Does an agent's consistent use of corporate checks, over the course of several years, automatically provide a third party with sufficient notice of the agent's corporate capacity to relieve the agent of personal liability for a contract?
Opinions:
Majority - Compton, J.
No, an agent's consistent use of corporate checks, over the course of several years, does not automatically provide a third party with sufficient notice of the agent's corporate capacity to relieve the agent of personal liability for a contract; whether such use constitutes adequate disclosure is a question of fact. The court reasoned that an agent acting for an undisclosed or partially disclosed principal is personally liable on the contract, and the burden rests on the agent to prove disclosure of both the agency relationship and the principal's identity. A third party is not required to inquire whether an agent is acting for another, but will be held to have notice if they know, have reason to know, should know, or have been given notification of the agency relationship (Restatement (Second) of Agency § 9). The court rejected establishing a rigid rule that corporate checks are either sufficient or insufficient as a matter of law to provide notice, concluding instead that the question is inherently factual, dependent on the totality of the surrounding circumstances in each case. Citing various precedents, the court affirmed that the reasonableness of a third party's failure to deduce a corporate principal from corporate checks varies widely. Applying a 'clearly erroneous' standard of review to the small claims court's factual finding, the court held that given Alfred Ferrara's testimony that most builders he dealt with were not incorporated and his long-standing business relationship with Jensen without knowledge of the corporate status, the trial court did not clearly err. The court further dismissed Arthur Jensen's attempt to supplement the record with construction plans identifying the corporation because these plans were seen by AVS only after the contract for appraisals was formed, and disclosure must occur at the time the contract is made to affect the agent's liability.
Analysis:
This case is legally significant for establishing that in Alaska, the consistent use of corporate checks alone is not a per se legal disclosure of corporate status sufficient to relieve an agent of personal liability. By treating notice as a question of fact rather than law, the decision provides greater protection to third parties who may not be sophisticated enough to deduce corporate identity from payment methods alone. This ruling reinforces the agent's affirmative burden to clearly and explicitly disclose their representative capacity and the corporate principal's identity at the time of contracting, influencing how small businesses and independent contractors must communicate their legal structure to avoid personal liability in future transactions.
