Cackowski v. Drake

• Decision Date: 11 January 2023
• Docket Number: E2022-00700-COA-R3-CV
• Parties: MICHAEL CACKOWSKI, ET AL. v. JASON DRAKE
• Court: Tennessee Court of Appeals

MICHAEL CACKOWSKI, ET AL.
v.
JASON DRAKE

No. E2022-00700-COA-R3-CV

Court of Appeals of Tennessee, Knoxville

January 11, 2023

Session November 29, 2022

Appeal from the Circuit Court for Washington County No. 40598 Jean A. Stanley, Judge

This appeal involves a breach of contract action filed against the agent of an undisclosed principal. The trial court entered an order granting judgment against the agent. The agent appeals. We affirm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed

Mark S. Dessauer, Kingsport, Tennessee, for the appellant, Jason Drake.

David N. Darnell, Kingsport, Tennessee, for the appellees, Michael Cackowski and wife, Patricia Cackowski.

Carma Dennis McGee, J., delivered the opinion of the court, in which D. Michael Swiney, C.J., and Thomas R. Frierson, II, J., joined.

OPINION

CARMA DENNIS MCGEE, JUDGE

I. Facts &Procedural History

Mr. Jason Drake incorporated Professional Appliance Direct, Inc. ("the Corporation") in October 2012. Mr. Drake was the sole shareholder, the sole officer, and the president of the Corporation. However, the Corporation was administratively dissolved by the Tennessee Secretary of State in August 2013. Mr. Drake later testified that he was unaware that the Corporation had been administratively dissolved at the time of its dissolution.

In February 2015, Mr. Michael Cackowski and his wife, Mrs. Patricia Cackowski, communicated with Mr. Drake by email for the purpose of purchasing appliances for their new home. Ultimately, the Cackowskis wired funds in the amount of $25,116.40 to the

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Corporation's account at the direction of Mr. Drake for the purchase of the appliances. In March 2015, however, Mr. Drake considered putting the Corporation into bankruptcy. He consulted with an attorney, who informed him that the Corporation had been administratively dissolved. Thereafter, Mr. Drake applied for and obtained the

Corporation's reinstatement. In April 2015, the Corporation filed a petition for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Eastern District of Tennessee. The Cackowskis later learned that their appliance order was never made by Mr. Drake and that the Corporation had filed for bankruptcy. The Cackowskis filed a proof of claim in bankruptcy court in June 2015. In their proof of claim, they noted the total amount of the claim was $25,116.40, but they were entitled to a priority claim of up to only $2,775.00 pursuant to 11 U.S.C. § 507(a)(7). Through the bankruptcy proceedings, the Corporation's assets were liquidated, and the Cackowskis recovered their priority claim in the amount of $2,408.33. However, they did not recover the remainder of their funds. The Corporation was then administratively dissolved in August 2016.

In March 2021, the Cackowskis filed a complaint against Mr. Drake alleging breach of contract. Mr. Drake subsequently filed an answer to the complaint. Following a trial on the matter, the court entered its order in May 2022. The court did not state its findings of fact or conclusions of law in its order. Instead, the court's order specifically stated that "the Court made the ruling as attached hereto and the Findings of fact are adopted as if set forth herein." In the attached ruling, the court found as follows:

So the first question for the Court is whether there was, in fact, a contract. And if there was, who was it between. So it's very clear to the Court that the contract was between the Plaintiffs and [Mr.] Drake and/or Professional Appliance Direct. There's absolutely no proof in this record that these Plaintiffs had any reason whatsoever to know that Professional Appliance Direct was a corporation . . It was not on any of Mr. Drake's paperwork. It was not on any of his emails. It was not affixed to a signature line on a contract or any other document. So who was the contract with? Was there a meeting of the minds? There was a very clear meeting of the minds. The Cac[k]owskis were buying appliances from [Mr.] Drake. Who, to them, looked like [Mr.] Drake doing business as Professional Alliance [sic] Direct. I don't see any other way that you can look at this

So I do believe this should be treated as a contract action Certainly, with a few tweeks [sic], it could have more of the flavor of a tortious action, we might be dealing with a different statute of limitations. I do not believe that to be the case here. I do not think there's a statute of limitations issue. I absolutely do not find that there is a statute of frauds issue. The parties were very clear and very concise in their communications about what was being asked for, what was being offered, what was finally accepted, what amount the payment was, and then that payment was made. So the statute of frauds

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does not apply. . . .

As to whether . . . Mr. Drake was protected by his corporate entity, I have to make a comment here that this corporation was about one-half of a baby step away from being a total complete sham. He never conducted it as a corporation -- he incorporated, he almost immediately let it lapse, never put it on his business stationery, door, car, or anything else, as far as I can tell. And then to claim that just because, I had my corporation reinstated at the last minute so I could file bankruptcy would give him protection in a situation like this is simply, absolutely inequitable. Absolutely 100% to this Court.

Now, the Plaintiffs did receive some payment in bankruptcy from the corporation. So it's clear that the corporation considered itself to be a party to the contract. It is clear to this Court that Mr. Drake was individually a party to this contract and/or an agent of a completely undisclosed corporate entity.

Thus, the trial court granted judgment in favor of the Cackowskis and against Mr. Drake. The trial court found that the amount owed for Mr. Drake's breach of contract was $22,708.07. Additionally, the court noted that the parties had agreed to the computation of prejudgment interest in the amount of $5,079.92. The total amount of judgment awarded against Mr. Drake was $27,787.99. Thereafter, Mr. Drake timely filed an appeal.

II. Issues Presented

Mr. Drake presents the following issues for review on appeal, which we have slightly restated:

1. Whether the trial court erred in finding or concluding that an enforceable contract existed between the Cackowskis and Mr. Drake;

2. Whether the trial court erred in misapplying the agency principle creating contractual liability for Mr. Drake, as the agent of an undisclosed principal, the Corporation, given that in this case, the Cackowskis previously sued and/or sought recovery from the Corporation, the principal of the agency relationship;

3. Whether the trial court erred in creating or "carving out" an equitable exception to Tennessee Code Annotated section 48-24-203(c); and

4. Whether the trial court erred in failing to find that Mr. Drake was not liable to the Cackowskis on the contract at issue based on his affirmative defense of the Statute of Frauds.

For the following reasons, we affirm the decision of the trial court.

III. Standard of Review

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In a non-jury civil case, a trial court's findings of fact are reviewed de novo with a presumption of correctness unless the evidence preponderates otherwise. Morrison v. Allen, 338 S.W.3d 417, 425-26 (Tenn. 2011) (citing Tenn. R. App. P. 13(d); Langschmidt v. Langschmidt, 81 S.W.3d 741, 744 (Tenn. 2002)). Questions of law, however, are reviewed de novo with no presumption of correctness. Id. at 426 (citing Seals v. H & F, Inc., 301 S.W.3d 237, 241 (Tenn. 2010); Colonial Pipeline Co. v. Morgan, 263 S.W.3d 827, 836 (Tenn. 2008)).

IV. Discussion

A. Personal Liability

Mr. Drake's first issue is whether the trial court erred in finding or concluding that an enforceable contract existed between the Cackowskis and Mr. Drake. The trial court concluded "that Mr. Drake was individually a party to this contract and/or an agent of a completely undisclosed corporate entity." Counsel for Mr. Drake clarified at oral argument that Mr. Drake is not contending that there was no contract at all; rather, Mr. Drake contends that the contract was between the Cackowskis and the Corporation.

In regard to this issue, the venerable common law rule in Tennessee is that an agent for an undisclosed principal is personally liable on a contract. Certain Interested Underwriters at Lloyd's, London, England v. Layne, 26 F.3d 39, 43 (6th Cir. 1994) (citing Anderson v. Durbin, 740 S.W.2d 417, 418 (Tenn. Ct. App. 1987)); see Amison v. Ewing, 42 Tenn. 366, 368 (1865) (An agent may "withhold his agency from the person with whom he deals, so as thereby to make himself personally responsible."). In order for an agent to avoid personal liability on a contract negotiated on behalf of the agent's principal, the agent must disclose both the fact of the agency and the identity of the principal. ICG Link, Inc. v. Steen, 363 S.W.3d 533, 550 (Tenn. Ct. App. 2011) (citing Siler v. Perkins, 149 S.W. 1060, 1061 (Tenn. 1912); Remote Woodyards, LLC v. Neisler, 340 S.W.3d 411, 416 (Tenn. Ct. App. 2009)). Our Supreme Court has explained as follows:

[A]n agent who makes a contract in his own name, without disclosing the identity of his principal, renders himself personally liable, even though the person with whom he deals knows that he is acting as agent, unless it affirmatively appears that it was the mutual intention of the parties to the contract that the agent should not be bound.

But as a matter of course, when a third person contracts with an agent with knowledge of that fact, and also with knowledge of the principal for whom the contract is made, then the contract, if it be within the scope of the powers

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of the agent, is in law the contract of the

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