Missouri courts have long held that when an agent for another makes a contract with a third party without disclosing the agency, the individual will be bound by the contract and the third party may hold the agent or the undisclosed principal responsible at his election. On September 24, 2019, the Missouri Court of Appeals, Western District, in Alpha Petroleum Company vs. Hani Daifallah, et al. applied this principle, and held that agents who did not properly disclose the agency relationship when entering into a business relationship with a third party were personally liable for the ensuing transactions.
The case involved the lease of a convenience store with gasoline services, between Plaintiff Alpha Petroleum’s sister company, A.J. Partnership, and the Defendants. Under the lease agreement, Defendants were required to purchase gasoline products from Alpha Petroleum. In the regular course of the dealing between the parties, Alpha Petroleum would ship the fuel to the convenience store location and subsequently invoice the Defendants. After Alpha Petroleum advised the Defendants that it was terminating the lease of the convenience store, the parties agreed to a six month extension to allow Defendants additional time to vacate the premises. Before the premises were vacated, Defendants received two more fuel deliveries, both of which went unpaid. Alpha Petroleum sued, seeking damages for nonpayment on account and unjust enrichment. Defendants contended that a separate entity, Zik Moe, Inc., a corporation owned in part by Defendant Mohammed Daifallah, operated the convenience store and was therefore liable for any debt owed to Alpha Petroleum. The trial court entered a judgment against Defendants, jointly and severally, for the entirety of the unpaid balances.
On appeal, Defendants argued that (1) there was no substantial evidence in the record to support the trial court’s conclusion that Defendants were personally liable for the debt owed by Zik Moe, and (2) the trial court misapplied the law by piercing the corporate veil to find Defendant’s personally liable for the debt owed to Alpha Petroleum. The Court of Appeals affirmed the ruling below. It noted that to prevail on a substantial evidence challenge, a defendant must demonstrate that there was no evidence in the record tending to prove a fact necessary to sustain the trial court’s judgment as a matter of law. But here, the trial court record contained evidence that the Defendants failed to disclose they were purported agents of a corporation during the five years they had done business with Alpha Petroleum, which was sufficient for the trial court to conclude that Defendants were personally liable for the unpaid invoiced, based on their failure to disclose an alleged agency relationship. Having upheld the judgment in favor of the Plaintiff on the first point, the Court of Appeals concluded it did not need to consider whether the trial court properly found Defendants personally liable for the debt Alpha Petroleum by piercing Zik Moe’s corporate veil.
The ruling reinforces the need for agents to be fastidious in disclosing the agency relationship, and in ensuring that the existence and identity of the principal are known, in order to avoid potential personal liability for future misdeeds of their principal.