Opinion ID: 2633445
Heading Depth: 2
Heading Rank: 2

Heading: individual enforcement of corporate obligations

Text: ¶ 33 Because Steenblik involved application of former section 16-10-139 to post-dissolution contractual liability of corporate principals, we were not required to discuss the right of principals to individually enforce such agreements. The majority incorrectly holds that section 16-10a-204 applies only to liability of persons purporting to act as or on behalf of a corporation, and not enforcement of the contract by these same persons. The court of appeals recently addressed this particular issue in Gardner v. Madsen, 949 P.2d 785 (Utah Ct.App.1997). In that case, NUF, Inc., was dissolved in May 1990 for failure to file an annual report. In June 1990, NUF, Inc., through an officer of the corporation, entered into a written contract for an ownership interest in personal property. The only parties to the contract were the defendants and NUF, Inc. The defendants argued the contract was void because it was entered into by a dissolved corporation and therefore the officer could not enforce it. Id. at 787-89. Relying heavily on White v. Dvorak, 78 Wash.App. 105, 896 P.2d 85 (1995), the court of appeals held that under former section 16-10-139 an individual who signs a contract for a nonexistent corporation can be a party to a contract and as such, can legally enforce its contractual obligations. ¶ 34 As in Gardner, White dealt directly with the contractual rights of individuals who had entered into contracts on behalf of corporations dissolved for failure to pay dues and file annual reports. Id. at 87. [3] Like the Millers and United in the instant case, the Whites were the only shareholders of Marlborough Properties, Inc., which was administratively dissolved for failure to file its annual report and pay its dues. Subsequently, Marlborough Properties, Inc., through Brian White, entered into an option agreement to purchase real property. In subsequent litigation over the agreement, the court held, absent unfair prejudice, an individual purporting to act as a corporation is a party to a contract signed in the name of a nonexistent corporation. As a party, the individual can sue for breach of contract. Id. The Gardner court applied the reasoning of White, stating: Although the individual who signs for a corporation is not a party to the contract, the individual may become a party with standing to enforce the contract by `assuming to act as a corporation without authority.'... The Washington court stated that all parties to the contract undeniably intended to create a valid, binding contract. Even if it is later determined that one of the parties erroneously represented itself to be a valid corporation, the contract is still enforceable.... Thus, `absent unfair prejudice ... from the use of a corporate name in the contract, [the individual purporting to act for a corporation] is a party to the contract and has an individual cause of action for its breach. Gardner, 949 P.2d at 789 (citing White, 896 P.2d at 90). ¶ 35 Given these interpretations of the predecessor to section 16-10a-204, I would not deviate from the URBCA as the majority does in deciding this case under section 164(1) of the Restatement of Contracts. Instead, I would adopt the reasoning of Gardner and apply it to the instant case. When Miller signed the April Agreement on behalf of United, as its president, because United was no longer in existence, Miller became a party to it, liable on its terms. See Utah Code Ann. § 16-10a-204; Steenblik v. Lichfield, 906 P.2d 872. Miller became liable on the contract because the contract was not void when he signed on behalf of United. Thus, unless enforcement of the contract works unfair prejudice against defendants, we should simply look to the contract to determine the rights of the parties. See Interwest Constr. v. Palmer, 923 P.2d 1350, 1359 (Utah 1996) (rights of contractual parties are based on the contract itself). ¶ 36 Moreover, even application of section 164(1) does not justify making the contract voidable. The majority finds that all the requirements of section 164(1) have been met, including a fraudulent or material misrepresentation, although no evidentiary hearing has been held. This case was decided on summary judgment. At a minimum, the plaintiffs are entitled to present their evidence as to what representations were made by the parties at the time of contracting. The majority finds that Miller enticed the defendants to enter into the contract with a nonexistent corporation and that but for the such deception, they would not have agreed to its terms. It is clear from the record, however, Crosby and Celebration were well aware of Miller's ownership of all the shares of the defunct corporation as well as the substantial liens on the property. In fact, in a June 9, 1994, letter to a bank that held a judgment against Miller for debts on the Vipont Mine, Crosby twice specifically requested the bank for a complete release to Mr. Miller, individually. Miller asserts this was always part of the original agreement in selling a portion of the property. Kontes supports this claim by affidavit stating that several times both he and Crosby visited the bank to ascertain the amount owed by Miller. In fact, phase II of the original contract itself requires Celebration to clear the liens on the property. Therefore, Miller did not induce the defendants to enter a contract in which they would receive nothing of value. Defendants themselves have continuously represented the property as having considerable value in investment circulars and other fund-raising efforts subsequent to purchasing the property. Given these facts, we should remand to the trial court to ascertain whether the defendants would be unfairly prejudiced by allowing Miller to enforce the contract. [4] ¶ 37 Since the April Agreement was signed by both parties, we must assume both parties intended at the time to perform under the terms of the agreement. 3A Arthur L. Corbin, Corbin on Contracts, § 546 (1960). Miller and his wife were sole shareholders of the defunct corporation. If for any reason Miller was subsequently unable to perform, the aggrieved party, Crosby, could pursue the appropriate legal recourse as in any other contractual arrangement gone bad. To that end, a party to the contract, a corporate principal in this case, would not be afforded protection from personal liability unless he met specific statutory protocol. Likewise, his right to enforce the contract would not be extinguished simply because there was no corporation in existence when the agreement was formed. ¶ 38 We should follow the URBCA which sets out the legislatively mandated method of conducting business as a corporation. The URBCA holds a corporate principal liable as a party to contracts entered into after dissolution as per our interpretation of section 16-10a-204. As a party to a contract, absent unfair prejudice, I find nothing in the URBCA which restricts the right of a principal signing a contract for an administratively dissolved corporation to enforce it.