Water, Waste and Lange, Inc. v. Lanham

995 P.2c 997 (1998)


In a land development deal, WWL did business under the name “Westec.”  One of the managers dealing with Westec, Clark, during negotiations passed his business card that contained his company’s name with the letters “P.I.I.” These letters at the time did not indicate any sort of limited liability.  Clark’s card also did not give the name of the business, but did provides its principal place of business.  The letters “PII” only appeared above the address of the card.  Clark was a member of a group called “Preferred Income Investors, LLC.  Westec was hired to do engineering work for Clark’s group and sent a bill, which was never paid by Clark’s group.

Westec sued Clark and the county rules: (1)Westec didn’t know Clark (Lanham)’s group had limited liability (2) the PII letters weren’t sufficient to put Westec on notice of limited liability (3) Westec didn’t have knowledge of an existing business, and only supposed they were dealing with Clark and his business personally (4)”Westec understood Clark to be Lanham’s agent and therefore Clark wasn’t personally liable.”  Thus, Clark was acting as an agent of Lanham and dismissed from the suit.  Lanham appealed the dismissal of Clark.  The district court then reversed this ruling, holding that Westec was put on notice of limited liability because the card contained the letters PII and Westec had a common law duty to inquire as to their liability status.


“Whether the members or managers of a limited liability company are excused from personal liability on a contract where the other part to the contract did not have notice that the members or managers were negotiating on behalf of a limited liability company at the time the contract was made.”


No, reversed, the court saw no legal basis to excuse the agents of the LLC from liability.  Under the common law of agency “an agent is liable on a contract entered on behalf of a principal if the principal is not fully disclosed.”  So the agent must disclose (1) he is acting on behalf of the principal and (2) who the principal is.

The district court should not have substituted its own facts in its ruling, because it had the power to rule a power de novo; thus, the district court should have accepted the facts as they came.  The letters PII were not sufficient to ID the status and identity of Preferred Income Investors, as was determined by the County Court.   And for the same reason the district court should not have found that Clark was not acting as Lanham’s agent.

The relevant statute should not be interpreted to mean that the common law requirement of IDing the principal is absolved.  A better interpretation is that all that’s required is IDing of the principal, which is sufficient for constructive notice and a duty of inquiry for the negotiating party.

However, it is still a different question whether Clark and Lanham can be sued as individuals, despite their LLC status.  Their LLC status outweighs Clark’s act as an agent and requires a higher level of wrongful intent by either to make them personally liable.  In order for them to be personally liable one or both must have had a wrongful intent.  Thus, “…where an agent fails to disclose either the fact that he is acting on behalf of a principal or the identity of the principal, the notice provision of Act cannot relieve the agent of liability to a third party.”

In conclusion, had Clark and Lanham revealed the full name of their corporation, under statute, there would have been constructive notice and a duty for Westec to know their LLC status.

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