This case arises out of an action by appellee, the Plain Dealer Publishing Company, to collect a

Question:

This case arises out of an action by appellee, the Plain Dealer Publishing Company, to collect a debt against Frederick ‘‘Rick’’ Worrell, doing business as WRL Advertising. The lawsuit also named Martha J. Musil, who placed advertising orders with the Plain Dealer. Musil placed orders on March 14, 2003, and March 28, 2003. The order form indicated that although the ad insertions for June, July, and September were cancelled, there was still a balance on the account. There was also a balance due the Plain Dealer for April and June.

   This lawsuit was commenced in August 2005 to collect a debt for advertising placed by Worrell. Shortly thereafter, Worrell filed bankruptcy, and as a result of the automatic stay, the trial court placed this case on the inactive docket. On January 24, 2006, the trial court granted the Plain Dealer’s motion to reactivate the case as to Musil only. Subsequently, the Plain Dealer moved for summary judgment, asserting that Musil was personally liable on the contracts because WRL Advertising was a fictitious entity with no legal standing. In support of its motion for summary judgment, the Plain Dealer relied primarily on the order forms that were written when the advertising orders were placed. The forms listed Musil as the contact person and indicated that the company name was WRL Advertising, and that the bill was to be sent to WRL Advertising.

   Musil filed a combined response to the Plain Dealer’s summary judgment motion and filed her own summary judgment motion. In her summary judgment motion, Musil confirmed that at all the relevant times, she (1) was an employee of WRL Advertising, (2) did not have an ownership interest in the company, and (3) had placed the order for advertising at the direction of her employer, WRL Advertising, of which Worrell was the owner. Musil attached to her summary judgment motion both her own affidavit and Worrell’s affidavit.

   On February 26, 2008, the trial court filed an order granting the Plain Dealer’s motion awarding judgment against Musil in the amount of $8,720, with statutory interest from July 2, 2004. Musil timely filed the instant appeal. * * *

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   In resolving this case, we must look to the law of agency. Agency law in Ohio has been summarized as follows:

(1) Where the agent is acting for a disclosed principal, i.e., where both the existence of the agency and the identity of the principal are known to the person with whom the agent deals. An agent who acts for a disclosed principal and who acts within the scope of his authority and in the name of the principal is ordinarily not liable on the contracts he makes. [Citations.] The rationale for this rule is that in this situation the third party intends to deal with the principal, not his agent.
(2) Where the principal is only partially disclosed, i.e., where the existence of an agency is known to the third person, but the identity of the principal is not known. Here, the agent is held to be a party to the transaction and is liable to the third party, as is the agent’s principal. [Citations.] The reason for the rule is that since the identity of the principal is not known to the third party, he ordinarily will not be willing to rely wholly upon the credit and integrity of an unknown party.
(3) Where the principal is undisclosed, i.e., where neither the existence of an agency nor the identity of the principal is known to the third party. Here, the dealing is held to be between the agent and the third party, and the agent is liable. [Citation.] Should the identity of the principal be discovered, he may be held liable by the third party who must elect to pursue either the principal or agent-both are not liable. [Citation.] The rationale for the agent’s liability is that since the third party was unaware of the agency, he intended to deal with the agent as an individual, not as an agent.
(4) Where there is a fictitious or nonexistent principal, or the principal is without legal capacity or status. If an agent purports to act on behalf of such a ‘‘principal,’’ the agent will be liable to the third party as a party to the transaction. [Citations.] One cannot be an agent for a nonexistent principal; there is no agency. This situation frequently arises where a corporate promoter enters into contracts prior to the time the corporation is actually incorporated. [Citation.]

   [Citation.]
   In the instant case, the trial court determined that although Musil communicated her agency relationship to the Plain Dealer, she did not sufficiently disclose the identity of her principal. In making this determination, the trial court noted that ‘‘[i]t is also undisputed that WRL Advertising is not a legal entity in its own right, but rather a trade name for Winfield, (sic) Bennett & Baer, LLC, which is owned and operated by Worrell.’’ The trial court held that the use of a principal’s trade name is insufficient to identify the principal. The trial court found that because she was acting, at best, on behalf of a partially disclosed principal, Musil was liable on the contracts.

*** 

   The parties do not contest the fact that Musil communicated to the Plain Dealer that she was working on behalf of a principal. In its brief, the Plain Dealer asserts that ‘‘Musil dealt directly with [the] Plain Dealer and held herself as acting on behalf of ‘WRL Advertising.’ Musil executed two contracts on behalf of ‘WRL Advertising [,]’ an entity that does not exist in Ohio.’’ Therefore, Musil properly notified the Plain Dealer that she was acting as an agent. In Ohio, an agent is liable to a third party when she contracts in the name of a nonexistent or fictitious principal or assumes to act as an agent for a principal who has no legal status or existence. [Citations.] We hold that Musil was not acting on behalf of a fictitious entity or an entity that does not exist in Ohio, but rather that WRL Advertising was a fictitious name for Wingfield, Bennett, & Baer, L.L.C.

***

   ‘‘A corporation may use a name other than its corporate name in the conduct of its business.’’ [Citation.] * * * In the instant case, the parties do not dispute that Wingfield, Bennett & Baer L.L.C. was registered with the Secretary of State. We find that Wingfield, Bennett & Baer is therefore not a fictitious or nonexistent principal for agency law purposes. Further * * * we note that WRL Advertising was a fictitious name for Wingfield, Bennett & Baer and that Musil was acting on behalf of Wingfield, Bennett & Baer, which was in turn using a fictitious name.

   An agent will ‘‘avoid personal liability for debts of the corporation only if he complies with the rules which apply in all agency relationships—he must so conduct himself in dealing on behalf of the corporation with third persons that those persons are aware that he is an agent of the corporation and it is the corporation (principal) with which they are dealing, not the agent individually.’’ [Citation.] In the instant case, Musil disclosed that she was acting on behalf of a principal, and therefore, the Plain Dealer knew that it was not dealing with Musil individually. We note that the Plain Dealer knew it was dealing with an entity, but that entity was using the fictitious name WRL Advertising. We do not find, as the Plain Dealer has urged, that the use of a name other than Wingfield, Bennett & Baer in the conduct of business would render Musil liable as an agent of a nonexistent or fictitious principal. As we find that Musil was acting on behalf of a legal entity using a fictitious name, we hold that the trial court erred when it granted the Plain Dealer’s motion for summary judgment. Accordingly, we reverse and remand for proceedings consistent with this opinion.

***

   Judgment reversed and cause remanded.

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Smith and Roberson Business Law

ISBN: 978-0538473637

15th Edition

Authors: Richard A. Mann, Barry S. Roberts

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