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Lake v. Premier Transportation

Court of Appeals of Texas
2007 WL 3196936, 246 S.W.3d 167 (2008)
ELI5:

Rule of Law:

To avoid personal liability on a contract, an agent acting on behalf of a corporate principal must disclose both the fact of the agency and the full identity of the principal, including its corporate status (e.g., 'Inc.'), at the time the contract is formed.


Facts:

  • James Les Lake organized and owned the corporation East Texas Property Management, Inc. ('ETPM').
  • In 2002, ETPM entered into an agreement to assist a Georgia company with repossessing mobile homes in East Texas.
  • An ETPM employee, Melissa Manning, hired Premier Transportation as a subcontractor to transport the repossessed mobile homes.
  • During contractual negotiations, ETPM was referred to by its trade name, 'East Texas Property Management,' without the corporate designation 'Inc.' being disclosed to Premier.
  • The Georgia company fell behind on its payments to ETPM.
  • Consequently, ETPM withheld payment from Premier for services it had already provided, leading to a dispute over payment.

Procedural Posture:

  • Premier Transportation sued James Les Lake individually, doing business as East Texas Property Management, in a Texas state trial court for breach of contract and quantum meruit.
  • Upon discovering the business was incorporated, Premier amended its petition to include East Texas Property Management, Inc. (ETPM) as a defendant.
  • Following a trial, a jury found both Lake and ETPM liable to Premier.
  • The jury also answered specific questions (9 and 9A), finding that Lake had disclosed he was acting as an agent for the corporation on a specific date.
  • Premier filed a motion asking the trial court to disregard the jury's findings to Questions 9 and 9A.
  • The trial court granted Premier’s motion and entered a final judgment holding Lake and ETPM jointly and severally liable.
  • Lake, as appellant, appealed the trial court's judgment to the intermediate court of appeals, with Premier as the appellee.

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Issue:

Does an agent avoid personal liability for a corporate debt by disclosing the principal's trade name without also disclosing its corporate status at the time the contract is formed?


Opinions:

Majority - Justice Sam Griffith

No. An agent does not avoid personal liability merely by disclosing the principal's trade name; the agent must also disclose the principal's corporate identity at the time of contracting to be shielded from liability. To avoid personal liability, an agent must disclose both that they are acting in a representative capacity and the identity of the principal. The court reasoned that using a trade name without a corporate designator like 'Inc.' is insufficient disclosure because the other party could reasonably believe they are dealing with an individual operating under an assumed name. The burden is on the agent to provide complete information about the principal's identity, and the other party has no duty to discover it. The court determined that this disclosure must occur at the time the contract is made, and any knowledge acquired by the other party after the fact cannot absolve the agent of personal liability. Because a review of the record showed no evidence that Lake or his employees disclosed ETPM's corporate status to Premier during the contractual negotiations, the trial court was correct to disregard the jury's finding and hold Lake personally liable.



Analysis:

This decision reinforces the strict disclosure requirements for agents seeking to avoid personal liability for their principals' contracts. It clarifies that merely using a business or trade name is insufficient; the agent has an affirmative duty to disclose the principal’s corporate status (e.g., 'Inc.', 'LLC'). The ruling establishes a clear precedent that the burden of disclosure lies entirely with the agent, and the other contracting party has no duty to investigate the principal's legal structure. This protects parties from unknowingly contracting with a limited-liability entity when they believe they are dealing with an individual.

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