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Applying the Doctrine of Incorporation by Estoppel in New York
Corporate existence can be critical to the capacity of corporate plaintiffs to bring claims, particularly when the claims are for breach of contract. In Rubenstein v. Mayo , 41 A.D.3d 826 (2d Dept. 2007), a case involving a commercial lease, it was held that since a nonexistent entity cannot acquire rights or assume liabilities, a corporation that has not yet been formed under New York law normally lacks capacity to enter into a contract. Consequently, breach of contract claims brought by corporate plaintiffs that were not fully formed at the time the contact was executed are vulnerable to dismissal under Civil Practice Law & Rules (CPLR) 3211(a)(3) on the ground of lack of capacity to sue. N.Y. C.P.L.R. 3211 (McKinney). Several Commercial Division cases make clear, however, that at times a non-existent corporation can be deemed to exist, and thus possess the legal capacity to contract and bring suit on that contract, pursuant to the common law doctrine of incorporation by estoppel. Supra, 41 A.D.3d 826.
Incorporation by Estoppel
The doctrine of incorporation by estoppel, sometimes called “corporation by estoppel,” provides that, if an opposing party has recognized an entity's corporate status and has dealt with it as such, and if those past dealings are not dependent on the entity's corporate status, the opposing party will be precluded from arguing that the entity lacks the capacity to bring suit on the grounds it was not a fully formed corporate entity at the time the contract was executed. 8 Fletcher Cyc. Corp. ' 3889. Thus, a party that has entered into a contract with what it believed was a properly formed entity may not thereafter avoid responsibility on the contract on the ground that the entity had not existed at the time the contract was made. Supra, 41 A.D.3d 826. Since estoppel is at bottom an equitable doctrine, concerns over fairness will often guide a court's determination of whether application of the doctrine is warranted in a particular case. Timberline Equip. Co. v. Davenport, 267 Or. 64, 71 (1973).
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