Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Thursday, October 20, 2011

"Agent" who contracts faces personal liability if purported principal does not exist

Supposed agent's signature on contract entails personal liability when the purported principal does not actually exist  
AGENT & PRINCIPAL: Consequences of contract formation when the principal is fictitious
[As a purported agent of a nonexistent principal a person] would be personally liable for any contract he made on behalf of that company. See Carter v. Walton, 469 S.W.2d 462, 471 (Tex. Civ. App.—Corpus Christi 1971, writ ref’d n.r.e.) ("As a general rule, one who contracts as an agent in the name of a nonexistent or fictitious principal, or a principal without legal status or existence, renders himself personally liable on the contracts so made.") (quoting 3 Am. Jur. 2d Agency § 295 (1962)); see also Restatement (Third) of Agency § 6.04 (2006) ("Unless the third party agrees otherwise, a person who makes a contract with a third party purportedly as an agent on behalf of a principal becomes a party to the contract if the purported agent knows or has reason to know that the purported principal does not exist or lacks capacity to be a party to a contract").
SOURCE: HOUSTON COURT OF APPEALS - 14-10-01077-CV - 10/20/11
AGENTS AND PRINCIPALS: Who is liabile on the contract?
In general, a person making a contract with another as agent for a disclosed principal does not become a party to the contract; but an agent of a disclosed principal will be held personally liable if the agent substitutes the agent‘s own responsibility for that of the principal, or pledges the agent‘s own responsibility in addition to that of the principal. Collins v. Guinn, 102 S.W.3d 825, 835 (Tex. App.—Texarkana 2003, no pet.); A to Z Rental Ctr. v. Burris, 714 S.W.2d 433, 435 (Tex. App.—Austin 1986, writ ref‘d n.r.e.). In order to avoid personal liability, an agent must disclose both the fact that the agent is acting in a representative capacity and the identity of the principal. Wynne v. Adcock Pipe & Supply, 761 S.W.2d 67, 69 (Tex. App.—San Antonio 1988, pet. denied). The agent is not relieved of the responsibility to disclose this information merely because the third party has the means of discovering the principal‘s identity. Id. Actual knowledge of the real principal, not suspicion, is the test. Hideca Petroleum v. Tampimex Oil Int’l, 740 S.W.2d 838, 842 (Tex. App.—Houston [1st Dist.] 1987, no writ).  

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