Wynne v. Adcock Pipe and Supply
761 S.W.2d 67, 1988 Tex. App. LEXIS 3131, 1988 WL 135363 (1988)
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Rule of Law:
An agent seeking to avoid personal liability on a contract has an affirmative duty to disclose to the third party both the fact that they are acting in a representative capacity and the identity of their principal.
Facts:
- On January 20, 1978, James Wynne and a partner filed an assumed name certificate for a partnership called 'J.W. Drilling', which was later abandoned.
- On January 15, 1979, Wynne filed Articles of Incorporation for 'Jim Wynne Drilling, Inc.' (the corporation).
- On August 3, 1981, the corporation filed an assumed name certificate to do business as 'J.W. Drilling Company'.
- In 1982, Wynne personally approached Adcock Pipe and Supply (Adcock) to open a line of credit.
- The account was opened and maintained under the name 'J.W. Drilling'.
- Wynne never informed Adcock that 'J.W. Drilling' was a corporation or that he was acting as its agent.
- Adcock extended credit based on Wynne's personal reputation, believing 'J.W. Drilling' and Wynne were the same entity.
- In 1986, the business defaulted on its debt to Adcock.
Procedural Posture:
- Adcock Pipe and Supply filed suit against James Wynne and Jim Wynne Drilling, Inc. in a Texas trial court on a sworn account.
- Following a bench trial, the trial court entered a judgment holding Wynne and the corporation jointly and severally liable for the debt.
- Wynne, as appellant, appealed the trial court's judgment to the Texas Court of Appeals.
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Issue:
Is an individual who opens a business account under a trade name personally liable for the resulting debt if he fails to disclose to the creditor that the business is a corporation?
Opinions:
Majority - Reeves, Justice.
Yes. An individual is personally liable for a corporate debt when he fails to disclose his agency status and the identity of the corporate principal. The court reasoned that the duty to disclose rests with the agent, not with the third party to investigate. Using a trade name like 'J.W. Drilling,' which does not contain corporate indicators such as 'Inc.', 'Corp.', or 'Company,' is insufficient to put a third party on notice of the corporation's existence. The test for sufficient disclosure is the third party's actual knowledge or reasonable grounds to know of the principal's existence, and constructive notice from public filings is not enough. Because Wynne did not affirmatively inform Adcock that he was acting on behalf of a corporation, he failed to meet his duty of disclosure and is therefore personally liable for the debt.
Analysis:
This decision reinforces the fundamental agency law principle that an agent bears the full burden of disclosing their principal to avoid personal liability. It clarifies that merely using a trade name, even one registered with the state, is not sufficient disclosure if that name does not signal corporate status to a third party. The ruling protects creditors by ensuring they know exactly with whom they are contracting—a person with unlimited liability or a corporation with limited liability. Consequently, this case serves as a crucial warning to agents and officers of corporations to be explicit about their representative capacity in all business dealings.
