Water, Waste & Land, Inc. d/b/a Westec v. Lanham
955 P.2d 997 (Colo. 1998)
Lanham and Clark were managers and members of Preferred Income Investors, a limited liability company. However, the company didn’t end with “LLC”. Clark began business negotiations with Westec and eventually had them send a contract to Lanham. Lanham never signed and returned it, but with verbal authorization from Clark, Westec began and ultimately finished the project.
- Westec was never paid for the work and sued.
- Unaware that he was dealing with an LLC, he sued to hold the members personally liable under agency theories.
- The trial court ruled in favor of Westec.
- Furthermore, it held that Westec understood Clark to be Lanham’s agent and, as such, Clark was not personally liable.
- Lanham appealed.
- The district court reversed, relying on a statutory provision that because the PII was filed as a LLC, Westec had constructive notice.
Did the statutory provision of constructive notice relieve the agent of liability from not fully disclosing his principal?
When a third party, without notice of the LLC, sues a manager or member of an LLC under an agency theory, the principles of agency law will apply.
- Thus, 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.
- In other words, an agent who negotiates a contract with a third party can be sued for any breach of the contract unless the agent discloses both the fact that he or she is acting on behalf of a principal and the identity of the principal.