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Contract signed by a yet-to-be-formed entity is binding on its principals (owners) and the contract's counterparty

Posted by Peter Papagianakis | Mar 05, 2021 | 0 Comments

In Sutton v. Houllou, 2021 NY Slip Op. 08211, the Appellate Division, Second Department held that a party who entered into contract with a company that had not yet been formed cannot avoid its obligations under the contract. Conversely, the individual who signed the contract using the name of a company that had not yet been formed cannot avoid its obligations under the contract. Thus, if you enter into a contract using the name of an unformed business entity, you will be personally liable to perform the obligations in the contract.

The appellate court stated that as "a general rule, a person entering into a contract on behalf of a nonexistent [business] entity may be held personally liable on the contract. . . . As a corollary, . . . that contract does not for that reason alone become void or voidable."

The index number of the trial court case is Index No. 513118/2015.

About the Author

Peter Papagianakis

Peter Papagianakis chairs the firm's matters pertaining to business deals. Since commencing his legal career in 1997, the firm's founding partner, has practiced law exclusively in the area of business contracts and transactions. His experience has been as an attorney for a national law firm and...


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