## Facts

- Landlords Edward A. Cantor and Leo Masin drafted a commercial lease naming Sunshine Greenery, Inc. as tenant.
- On December 16, 1974, William J. Brunetti signed the lease as “president” of Sunshine Greenery, Inc.
- Cantor knew Brunetti was forming a new corporation and expected the corporation—not Brunetti personally—to be liable; Cantor did not request a personal guaranty or investigate Brunetti’s finances.
- At signing, Cantor requested a check for first month’s rent and security; a $1,200 check was completed and signed by Brunetti as president of Sunshine Greenery, Inc.
- The next day, counsel for Sunshine Greenery, Inc. repudiated the lease; Cantor responded that he would hold the client responsible.
- The check was dishonored after a stop-payment order and because Sunshine Greenery, Inc. had no bank account.
- Incorporation steps preceded the lease: the corporate name was reserved (Nov. 21, 1974) and a certificate of incorporation was executed and mailed for filing (Dec. 3, 1974), but the Secretary of State did not file it until Dec. 18, 1974.
- Plaintiffs sued the corporation and Brunetti; a default judgment entered against Sunshine Greenery, Inc., and after a bench trial the court entered a personal judgment against Brunetti on a promoter-liability theory.

## Issues

1. Whether Sunshine Greenery, Inc. existed as a de facto corporation when the lease was executed, despite the certificate of incorporation not being filed until two days later.
2. If a de facto corporation existed, whether Brunetti could be held personally liable on the lease he signed as corporate president.
3. Whether plaintiffs, who knowingly dealt with and sued the entity as a corporation, could deny its corporate status to impose individual liability.

## Decision

- The Appellate Division reversed the personal judgment against Brunetti.
- The court held Sunshine Greenery, Inc. was a de facto corporation at the time of contracting.
- Because the lease was a corporate obligation and plaintiffs intended to look to the corporation, Brunetti was not personally liable.

## Legal Principles

- A de facto corporation exists where (1) there is a statute authorizing incorporation, (2) there is a bona fide attempt to comply with incorporation requirements, and (3) there is actual use or exercise of corporate powers.
- A filing delay not attributable to the organizers does not necessarily defeat de facto corporate status where substantial pre-contract steps toward incorporation were taken and the entity acted in the corporate name.
- When a third party knowingly contracts with an entity as a corporation and treats it as such (including suing it as the obligor), the third party may be barred from denying corporate existence to reach individuals.

## Conclusion

The appellate court held that substantial steps toward incorporation, coupled with actual business conduct in the corporate name and the landlords’ understanding that only the corporation would be bound, established a de facto corporation and prevented personal liability against the signer who acted as corporate president.


Cantor v. Sunshine Greenery, Inc., 165 N.J. Super. 411, 398 A.2d 571 (N.J. Super. Ct. App. Div. 1979)