Benjamin Plumbing, Inc. v. Barnes

• Citation: 162 Wis.2d 837,470 N.W.2d 888
• Decision Date: 20 June 1991
• Docket Number: No. 89-1334-FT,89-1334-FT
• Parties: BENJAMIN PLUMBING, INC., Plaintiff-Appellant, v. Bette BARNES, Defendant-Respondent, William K. Whitcomb, Defendant-Respondent-Petitioner, Harry Ludwig, and Response to Hunger, An Unincorporated Association, Defendants-Respondents.
• Court: Wisconsin Supreme Court

Page 888

470 N.W.2d 888

162 Wis.2d 837

BENJAMIN PLUMBING, INC., Plaintiff-Appellant, v. Bette BARNES, Defendant-Respondent, William K. Whitcomb, Defendant-Respondent-Petitioner, Harry Ludwig, and Response to Hunger, An Unincorporated

Association, Defendants-Respondents.

No. 89-1334-FT.

Supreme Court of Wisconsin.

Argued April 23, 1991.

Decided June 20, 1991.

Diane Nicks, Madison, for defendant-respondent-petitioner.

Robert W. Aagaard, Madison, for plaintiff-appellant.

HEFFERNAN, Chief Justice.

This is a review of a published decision of the court of appeals ¹ reversing a summary judgment of the circuit court for Dane county, George A.W. Northrup, circuit judge, which dismissed an action brought by Benjamin Plumbing, Inc., against William K. Whitcomb individually for breach of contract. We affirm.

The circuit court found that, based on the undisputed facts, Benjamin Plumbing reasonably should have been placed on notice that it was not contracting with Whitcomb as a private individual but rather with the corporation, "Response to Hunger Network" (RHN), which Whitcomb was representing.

The court of appeals reversed the circuit court's summary judgment, holding that, because the agent Whitcomb did not in any way assume his duty to disclose the corporate status of his principal, RHN, he was liable to Benjamin Plumbing as a party to the contract. The court of appeals also rejected Whitcomb's defense that, as a director of RHN, a nonprofit corporation, he was immune from such contractual liability under sec. 181.287, Stats. ² We affirm the court of appeals, which held that Whitcomb, acting as an agent for a partially disclosed principal, is liable on the contract. We conclude that the undisputed facts known to Benjamin Plumbing at the time of contracting with Whitcomb did not raise a reasonable inference that RHN was a corporation, and accordingly Benjamin had no notice of the corporate identity of the principal. We also conclude that sec. 181.287, Stats., does not provide Whitcomb with any statutory immunity, because Whitcomb's liability did not arise "from a breach of, or failure to perform, any duty resulting solely from his ... status as a director" of RHN.

The facts of this case are not in dispute. In 1987 Whitcomb contacted Benjamin Plumbing, Inc., an incorporated family plumbing business located in Madison, about the possibility of doing some plumbing work on a canning project for the "Response to Hunger Network" on the Mendota State Hospital grounds.

In a letter dated May 5, 1987, to Donald Knapp, the general manager of Benjamin Plumbing, Whitcomb requested a "rock bottom" price for the plumbing work. The letter stated that a minimum subsistence rate would be appreciated because "we have to search for donations to pay for this work and in the end we do not even have a product that will bring us any income." Under Whitcomb's signature were the typed words, "William K. Whitcomb, For Response to Hunger Network." In the letterhead, however, were the words, "National Council of the Churches of Christ in the United States of America, CHURCH WORLD SERVICE," with Whitcomb listed as its regional director.

In a letter dated June 20, 1987, and addressed to "Response to Hunger, To Whom It May Concern," Knapp set forth Benjamin Plumbing's price quotations for work on the cannery project. The letterhead used by Knapp set forth the words, "Benjamin Plumbing, Inc."

In a letter to Knapp dated July 9, 1987, Whitcomb accepted Benjamin Plumbing's rates and authorized Knapp to start the work. Whitcomb advised Knapp that he could be reached at his Church World Service address and phone number. Under Whitcomb's signature were the typed words, "William K. Whitcomb, Canning Committee--RHN." The letterhead was captioned, "RESPONSE TO HUNGER NETWORK."

Benjamin Plumbing completed the work but was subsequently paid only $5,000 of the final bill, which amounted to $10,603.66. The appropriateness of the total bill is not disputed. On October 30, 1987, Benjamin Plumbing filed an "Application and Certificate for Payment," asking for payment of the balance. Response to Hunger Network was listed in the document as the owner of the cannery project.

On December 6, 1988, Benjamin Plumbing, not having received payment, filed an action against Whitcomb and two other members of RHN individually and RHN as an unincorporated association. The complaint alleged that all the defendants were jointly and severally liable for the unpaid balance of the plumbing contract. In their answer, the defendants denied contractual liability and affirmatively asserted that "Response to Hunger Network, Inc., is a Wisconsin corporation formed pursuant to Chapter 181 of the Wisconsin statutes."

Thereafter, Benjamin Plumbing brought a motion for summary judgment supported by an affidavit of its corporate president, David Benjamin, and copies of the various letters exchanged by the parties. The defendants opposed that motion, claiming that Whitcomb was a corporate director and that the other members were corporate officers of RHN and, accordingly, that they were all statutorily immune under sec. 181.287, Stats. The defendants also asserted that the mere failure to utilize RHN's full corporate name (which under sec. 181.06 would include some form of the word, "incorporated") ³ when contracting does not automatically abrogate the statutory protections. The motion in opposition was supported by RHN's articles of incorporation and affidavits of Whitcomb and the other individual defendants.

The circuit court found that there were no material facts in dispute and considered the dispositive issue of law to be whether RHN's failure to expressly identify itself as a corporation in the contract and other correspondence destroyed the "personal liability protection under Wisconsin statutes." Focusing on sec. 181.06, Stats., ⁴ and case law from other jurisdictions interpreting similar "corporate name" statutes, the circuit court concluded that the defendants should not be stripped of their personal liability protection unless Benjamin Plumbing could prove that it was "injured or misled by such misdescription" (citing 19 C.J.S., Corporations, sec. 1136 (1940)).

Examining the exhibits submitted in support and opposition to summary judgment, the circuit court held that, while there was no specific reference to RHN's incorporated status anywhere in the correspondence, Benjamin Plumbing, "itself a corporate entity, should have been placed on notice that it was not dealing with private individuals." The letters clearly indicated that the plumbing work was for RHN. Thus, because Benjmain Plumbing did not affirmatively allege any special harm or that the corporate status was purposefully concealed, the circuit court declined to "pierce the corporate veil" and hold the defendants personally liable. ⁵

Because Whitcomb individually contracted with Benjamin Plumbing without disclosing RHN's corporate status, the court of appeals reversed the circuit court's judgment dismissing the action against Whitcomb but affirmed it as to the other defendants. 156 Wis.2d at 278-79, 456 N.W.2d 628. ⁶ Believing it was faced with an issue of first impression, the court of appeals adopted various "black letter" agency principles setting forth that a person making a contract for a "partially disclosed principal" is a party to the contract and liable for its breach and that a principal is partially disclosed when the other party has notice that the agent is acting for a principal but has no notice of the principal's (corporate) "identity." 156 Wis.2d at 280, 456 N.W.2d 628, (citing Restatement (Second) of Agency, secs. 4(2), 321 (1958)). As applied to corporate contracts, the court of appeals stated the general rule that an agent has a duty to disclose the corporate identity of the principal to avoid personal liability. 156 Wis.2d at 280-81 (citing 3A W. Fletcher, Cyclopedia of the Law of Private Corporations, sec. 1120, at 237-38 (rev. ed. 1986), and case law from other jurisdictions).

The court of appeals concluded that Whitcomb was personally liable because he was the contracting party and there was no evidence that the corporate status of RHN was disclosed to Benjamin Plumbing. 156 Wis.2d at 281-82, 456 N.W.2d 628. It emphasized that its holding was premised on agency principles and not upon "piercing the corporate veil" theory, which looks to the wrongful conduct of the defendant. Id. at 281-83, 456 N.W.2d 628.

Finally, the court of appeals rejected Whitcomb's contention that sec. 181.287, Stats., independently provided him with statutory immunity. The court noted that the statute only shields a director from liability "arising from a breach of or failure to perform, any duty resulting solely from his or her status as a director." 156 Wis.2d at 283, 456 N.W.2d 628. Because the the court of appeals did not consider Whitcomb's contractual liability to "solely" arise out of or relate to his status as a director of RHN, it deemed sec. 181.287 inapplicable. Id. at 284-85, 456 N.W.2d 628.

We granted Whitcomb's petition for review to determine (1) whether an agent is personally liable on a contract where the other party did not have notice of the corporate status of the principal at the time of contracting, and (2) whether sec. 181.287, Stats., provides immunity to a director contracting on behalf of a corporation who is otherwise liable on the contract under common law agency principles. ⁷

This court has long adhered to the general rule that, where an agent merely contracts on behalf of a disclosed principal, the agent does not become personally liable to the other contracting party. See Theuerkauf v. Sutton, 102 Wis.2d 176, 188, 306 N.W.2d 651 (1981); Hooper v. O.M. Corwin Co., 199 Wis. 139, 146, 225 N.W. 822 (1929). Under common law agency principles, however, an agent will be considered a party to the contract and held liable for its breach where the principal is only...