HOWELL v. SMITH

No. 315.

134 S.E.2d 381 (1964)

261 N.C. 256

Hubert M. HOWELL, t/a Howell Oil Company v. Herbert SMITH, t/a Atlantic Block Company.

Supreme Court of North Carolina.

January 31, 1964.


Attorney(s) appearing for the Case

Sasser & Duke, by John E. Duke, Joseph H. Davis, Goldsboro, for plaintiff appellee.

James N. Smith, Goldsboro, for defendant appellant.


SHARP, Justice.

This case was heard at the Fall Term 1962 at which time the question of nonsuit was decided adversely to the defendant. Howell v. Smith, 258 N.C. 150, 128 S.E.2d 144.

These rules are well established in the law of agency:

An agent who makes a contract for an undisclosed principal is personally liable as a party to it unless the other party had actual knowledge of the agency and of the principal's identity. Walston v. R. B. Whitley & Co., 226 N.C. 537, 39 S.E.2d 375; North Carolina Lumber Co. v. Spear Motor Co., 192 N.C. 377, 135 S.E. 115; 3 Am.Jur.2d, Agency § 320; Restatement, Agency 2d § 322; 2 Williston on Contracts, 3d Ed. § 284. The disclosure of the agency is not complete so as to relieve the agent of personal liability unless it embraces the name of the principal. The duty is on the agent to make this disclosure and not upon the third person with whom he is dealing to discover it. 3 Am.Jur.2d, Agency § 317. It will not relieve the agent from personal liability that the person with whom he dealt had means of discovering that the agent was acting as such. 2 Williston on Contracts, 3d Ed. § 288. "Actual knowledge brought by the agent, or, what is the same thing, that which to a reasonable man is equivalent to knowledge, is the criterion of the law." Conant Co. v. Lavin, 124 Me. 437, 126 A. 647. Mere suspicion and means of knowledge do not amount to actual knowledge. Ell Dee Clothing Co. v. Marsh, 247 N.Y. 392, 160 N.E. 651. "It is not sufficient that the seller may have the means of ascertaining the name of the principal. If so, the neglect to inquire might be deemed sufficient. He must have actual knowledge. There is no hardship in the rule of liability against agents. They always have it in their own power to relieve themselves, and when they do not, it must be presumed that they intend to be liable." Cobb v. Knapp, 71 N.Y. 348, 27 Am.Rep. 51; Saco Dairy Co. v. Norton, 140 Me. 204, 35 A.2d 857, 150 A.L.R. 1299; 1 Mechem on Agency 2d Ed. § 1413. The cases are in substantial accord that the use of a trade name is not as a matter of law a sufficient disclosure of the identity of the principal and the fact of agency. Annot., 150 A.L.R. 1303.

The liability of the agent is not exclusive. When the principal becomes known, the other party to the contract may elect whether he will resort to him or to the agent with whom he dealt unless the contract is under seal, a negotiable instrument, or expressly excludes him. Carolina Hardware Co. v. Raleigh Banking Co., 169 N.C. 744, 86 S.E. 706; Restatement, Agency 2d, §§ 186, 322; 2 Williston on Contracts, 3d Ed. § 286. Ordinarily, however, it is an alternative liability. The principal and agent are not jointly liable unless the agent has, by contract or by his conduct, added his own liability to that of the principal. Rounsaville v. North Carolina Home Insurance Co., 138 N.C. 191, 50 S.E. 619. It is competent for an agent, although fully authorized to bind his principal, to pledge his own personal responsibility instead. De Remer v. Brown, 165 N.Y. 410, 59 N.E. 129. The aggrieved party seeking damages must elect whether he will hold the principal or the agent liable; he cannot hold both. Walston v. R. B. Whitley & Co., supra; Horton v. Southern R. R., 170 N.C. 383, 86 S.E. 1020.

The right of the third party to sue the agent is not impaired by a discovery of the identity of the principal after the contract was made. Tiffany on Agency § 99. The disclosure of the principal comes too late to discharge the agent after the third party has extended credit, performed services, or entered upon the performance of an indivisible contract. To protect himself, the agent must disclose the fact that he is acting for a designated principal in time for the third party to determine beforehand whether he will accept the responsibility of the principal in the transaction. Knowledge of the identity of a principal acquired after the performance of the contract, cannot release the obligated agent to whom credit was extended and substitute a stranger to the transaction. Whiting v. Saunders, 23 Misc. 332, 51 N.Y.S. 211; Curtis v. Miller, 73 W.Va. 481, 80 S.E. 774; Lull v. Anamosa Nat. Bank, 110 Iowa 537, 81 N.W. 784; Hospelhorn v. Poe, 174 Md. 242, 198 A. 582.

The trial court adequately explained these rules of law as they apply to the instant case. Whether the agent or the principal was the contracting party was a question for the jury. Howell v. Smith, supra. Its verdict has established that at the time defendant made arrangements with plaintiff to furnish oil to the Atlantic Block Company he did not disclose that he was acting as the agent of a corporation. Therefore, he was the original contracting party and outside the usual rule that an officer of a corporation will not be individually bound when contracting within the scope of his employment as an agent of the corporation. Potter Coal Co. v. Chaney, Ky., 290 S.W.2d 44.

However, the agreement in this case was not a single indivisible contract. Under it, upon order, plaintiff delivered oil to the Block Company from April 5, 1957 to June 17, 1960. If a third party to a contract involving an undisclosed principal discovers the agency and the identity of the principal while a continuing, divisible contract for the furnishing of goods or supplies is still executory, he then has the option to deal either with the agent or the principal with respect to the future performance of the contract. Ordinarily, the agent who made the original purchase is not liable if the third party continues to deliver goods after acquiring knowledge of the principal's identity unless he has agreed to be personally liable. Brackenridge v. Claridge, 91 Tex. 527, 44 S.W. 819.

The appellant's position is this: Conceding arguendo that plaintiff originally dealt with the defendant as the agent of an undisclosed principal in April 1957, by June 1959 he had acquired such information that he must have known that the defendant was the agent of a corporation and thereafter the corporation was solely liable. The defendant assigns as error that the judge (1) failed to explain "what constitutes knowledge by a third person of the identity of the principal," and (2) failed "to instruct the jury that plaintiff must show that the identity of the defendant's principal remained undisclosed by defendant and was unknown to the plaintiff at the time of the last or unpaid items of the alleged account."

There is no evidence whatever that plaintiff knew that Mr. Marlow's business, the Atlantic Building Block Company, was a corporation. After April 1957 the invoices which Maready had printed bore the caption "Atlantic Building Block Company." It is a fair inference that for each of the five purchases for which plaintiff received a statement bearing the abbreviation "Inc.," he received an invoice without it. Payments received by plaintiff on the account in question were made by checks which gave no clue that a corporation was paying the bill. Below the printed name "Atlantic Block Company" appeared the individual signature of either the defendant or the manager, Maready. It is noted that Maready testified that he received his salary from the defendant personally. The sign at the site of the business identified it as "Atlantic Building Block Company," and fifty or sixty highway signs throughout the county proclaimed the name of the enterprise as "Atlantic Block Company."

To establish knowledge of agency on the part of the plaintiff, defendant must rely upon the five statements bearing the imprint, "Atlantic Building Block Co., Inc." which were sent when plaintiff purchased materials from the Block Company. Did the receipt of those statements constitute such evidence of knowledge as to require an instruction that the burden was on the plaintiff to satisfy the jury that the identity of defendant's principal remained undisclosed to him thereafter?

In Saco Dairy Co. v. Norton, supra, the defendant was manager of his mother's hotel, Breakwater Court. As a result of interviews with the defendant R. T. Norton in 1941, plaintiff sold a substantial amount of dairy products for use in the hotel. At no time did they discuss who owned the hotel. All bills were charged to the Breakwater Court and the total bill for 1941 was paid by a check signed "Kate F. Norton by R. T. Norton, Atty." The bills for 1942 were not paid and were the subject of the suit. The sole question was whether the agency of the defendant was disclosed to the plaintiff by the check or the trade name, or both. The trial court held that it was not and the Supreme Judicial Court affirmed. With reference to the check, the court said:

"This was not, as a matter of law, a disclosure of the agency, nor was it evidence of such probative force that the Justice was bound to consider it conclusive of itself or in connection with other facts submitted. * * * It might well be that the check was received in such routine manner that it had little or no significance on the question of knowledge of the plaintiff."

In Philips v. Hine, 61 App.Div. 428, 70 N.Y.S. 593, it was held that payment to plaintiff by the checks of a Savings & Loan Association was not necessarily notice to him that he was employed by the association. He had been given no express notice of that fact, and he had furnished the work and material for which he sought recovery at the request of the individual defendant.

In McManor Plantation v. Rouse, La. App., 55 So.2d 631, defendant purchased potatoes from the plaintiff on May 4, 5, 6, and 8, 1950. The purchase of May 4th was paid for by a draft drawn on B Company. Similar drafts, subsequently dishonored, were given for the purchases on May 5th and 6th. Defendant's check was given for the sale on May 8th. When sued for the purchase price of the potatoes sold on May 5th and 6th, the defendant contended that the drafts drawn on B Company fixed plaintiff with notice that defendant was acting as its agent. The court said: "The only import, as we see it, of the name of the alleged principal appearing on the drafts, is whether that fact, coupled with other evidence, would amount to a disclosure by the agent of his principal. From the evidence taken as a whole, we do not think that it would."

Likewise, under the circumstances in this case, we do not think that the receipt of the five statements, even conceding they were mailed in envelopes bearing the name "Atlantic Building Block Co., Inc.," were sufficient to establish actual knowledge by plaintiff that he was dealing with a corporation. At the time the contract was made in April 1957, the defendant dealt with plaintiff's salesman and manager as an individual. He announced that he would operate under the name of Atlantic Block Company and not under the name by which Marlow had done business. When the first delivery of oil was made the defendant receipted for it as an individual. Thereafter every check sent as payment on account was signed by the defendant or his employee Maready individually. In view of the direct personal dealing by the defendant with the plaintiff, we do not think it can be inferred that plaintiff acquired actual knowledge that defendant represented a corporation from the incidental receipt of the five statements under all the circumstances detailed herein. Defendant had it in his power to relieve himself of all personal liability by contracting in the corporation's name. This he did not do, and plaintiff relied upon his credit. Therefore the hardship of the loss should not be imposed upon the plaintiff.

Under the evidence in this case, the omissions complained of were not error. The judge's charge sufficiently applied the law to the case.

In the trial below we find

No error.


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