Business Associations, Pages 306–308

Cantor v. Sunshine Greenery, Inc.

Superior Court of New Jersey, 1979

Facts:

Plaintiffs prepared a lease with Sunshine Greenery as the tenant, and Brunetti signed as the president thereof. Plaintiff knew that Brunetti was starting a new company and expected that it would be liable and not Brunetti individually. That day Brunetti also signed a C's blank check as president of Sunshine Greenery to cover the first month's rent.

The next day, counsel for Sunshine Greenery repudiated the lease, but plaintiff said that he would hold the "client" responsible for all losses. The check was not honored because Brunetti stopped payment and also because Sunshine Greenery did not have an account at the bank.

While the certificate of incorporation had been signed and sent in two weeks prior, for unknown reasons it was not officially filed until the two days after the lease was signed.

Procedural History:

Trial court held that Brunetti was individually liable because he was acting as a promoter and that Sunshine Greenery was not a de facto corporation.

Issue:

Can Brunetti be held individually liable?

Rule:

A bona fide attempt to incorporate in compliance with a statute and actually using or exercising the corporate privileges will create a de facto corporation and allow the shareholders ot retain their limited liability in suits by third parties.

Reasoning:

While Sunshine Greenery was not a de jure corporation at the time of the lease due to the late filing, it was a de facto corporation in that there was a bona fide attempt to organize the corporation beforehand and there was an actual exercise of the corporate powers. Plaintiffs knew that they were dealing with the corporate entity and not Brunetti individually. Thus, it is clear that the de facto status of the corporation suffices to absolve Brunetti from individual liability.

Holding:

No, Brunetti cannot be held personally liable. Reversed.


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