On April 3, 2024, the Second Department issued a decision in Teva Realty, LLC v. Cornaga Holding Corp., 2024 NY Slip Op. 01833, holding that a defendant that dealt with an entity as a corporation cannot avoid its obligations to is because it was not properly incorporated, explaining:
The defendants failed to make a prima facie showing that RC lacked capacity to enter into a contract and, thus, that they were entitled to summary judgment dismissing the causes of action for specific performance of the contract, for equitable reduction of the contract price, and alleging anticipatory breach of contract on that basis. Generally, it is true that since a nonexistent entity cannot acquire rights or assume liabilities, a corporation which has not yet been formed normally lacks capacity to enter into a contract. However, under the doctrine of corporation by estoppel, one who has recognized an organization as a corporation in business dealings should not be allowed to quibble or raise immaterial issues which do not concern him or her in the slightest degree or affect his or her substantial rights. Thus, parties who deal with an entity holding itself out as a corporation and who receive performance from such entity are estopped from avoiding their obligations to it.
Here, the defendants dealt with RC as an incorporated entity for several years, from the execution of the contract in 2016 until the commencement of this action in 2019. Contrary to their contentions, the defendants failed to establish that they received no benefit from the contract, as they admit to having received the contract deposit, which was held in escrow by their attorney. Accordingly, the defendants are estopped from denying RC’s validity for the purposes of avoiding their obligations to it. Therefore, the defendants were not entitled to summary judgment dismissing the causes of action for specific performance of the contract, for equitable reduction of the contract price, and alleging anticipatory breach of contract on the basis of RC’s alleged lack of capacity, regardless of the sufficiency of the plaintiffs’ opposition papers.
(Internal citations omitted).