Cantor v. Sunshine Greenery, Inc.
165 N.J. Super. 411, 398 A.2d 571 (1979)
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Rule of Law:
A corporation has de facto existence, shielding its principals from personal liability, when there has been a bona fide attempt to incorporate under an existing statute and an actual exercise of corporate powers, particularly when the third party contracting with the entity understood it to be a corporation.
Facts:
- On November 21, 1974, the corporate name 'Sunshine Greenery, Inc.' was reserved for William J. Brunetti.
- On December 3, 1974, Brunetti signed a certificate of incorporation for Sunshine Greenery, Inc., which was mailed to the New Jersey Secretary of State with the filing fee that same day.
- On December 16, 1974, Brunetti, signing as president of Sunshine Greenery, Inc., executed a lease agreement with plaintiffs Edward Cantor and Leo Masin.
- Cantor knew he was leasing the property to a newly formed corporation and did not request a personal guarantee from Brunetti.
- Brunetti provided Cantor a check for the first month's rent and security deposit, signed in his capacity as president of Sunshine Greenery, Inc.
- On December 17, 1974, counsel for Sunshine Greenery, Inc. sent a letter repudiating the lease.
- Due to an unexplained administrative delay, the certificate of incorporation was not officially filed by the Secretary of State until December 18, 1974, two days after the lease was signed.
Procedural Posture:
- Plaintiffs Edward A. Cantor and Leo Masin sued Sunshine Greenery, Inc. and William J. Brunetti in the New Jersey Law Division (trial court) for breach of lease.
- A default judgment was entered against the corporate defendant, Sunshine Greenery, Inc.
- Following a nonjury trial regarding the individual defendant, the trial judge entered a judgment holding William J. Brunetti personally liable.
- The trial judge reasoned that Brunetti was acting as a promoter because Sunshine Greenery, Inc. was not a legal or de facto corporation when the lease was signed.
- William J. Brunetti, as appellant, appealed the judgment to the Superior Court of New Jersey, Appellate Division.
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Issue:
Does an individual who executes a contract on behalf of a business become personally liable for a breach of that contract if the business's certificate of incorporation was not yet filed, despite a good faith effort to file it and the other party's understanding that they were dealing with a corporate entity?
Opinions:
Majority - Larner, J.A.D.
No. An individual is not personally liable when the corporation for which he acted had de facto corporate status. Here, there was a bona fide attempt to organize the corporation by executing and mailing the certificate of incorporation before the lease was signed, and there was an actual exercise of corporate powers through the negotiation and execution of that lease. Because plaintiffs knew they were contracting with the corporate entity and not Brunetti individually, they are estopped from collaterally attacking the corporation's existence to impose personal liability on Brunetti. The delay in filing was a mere technicality, and denying de facto status would create an unjust result contrary to the parties' contractual expectations.
Analysis:
This decision reaffirms the common law doctrine of the de facto corporation, demonstrating its continued relevance even under modern, simplified business statutes. It emphasizes that courts will look to the substance of the parties' intentions and actions rather than allowing a mere technical filing error to create unintended personal liability for an entrepreneur. The ruling establishes that when a third party believes it is dealing with a corporation, it is generally estopped from later denying that existence to hold an individual liable. This provides a crucial equitable protection for incorporators who have acted in good faith.
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