This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
Tuesday, September 30, 2014
Court Rejects Notion that Contract with Nonexistent Corporation is Void Ab Initio
Court Rejects Notion that Contract with Nonexistent
Corporation is Void Ab Initio
recent decision, the court rejected an effort to declare a contract void on the
basis that the alleged counter-party did not exist as a legal entity at the
time the contract was entered into.Pharmacogemetics Diagnostic Laboratory, Inc.
v. Essential Molecular Testing Corp, LLC – PGXL Partners, LLC, Civ. Act. No.
3:13-CV-867-H, 2014 WL 4163859 (W.D. Ky. Aug. 20, 2014).
entered into a sales representative agreement with an entity identified as “Essential
Molecular Testing Corporation”; Scott Goodman signed the agreement as president
and CEO. The only problem was that there was no such corporation, and no such
corporation has subsequently come into existence. Rather, some time after the
agreement was entered into, Goodman caused a pre-existing LLC to adopt that
EMTC was quite successful in marketing Pharmacogenetics’ product, giving rise
to substantial commission obligations. Pharmacogenetics filed suit requesting
that the sales representative agreement be declared void ab initio on the basis
that EMTC did not exist. As set forth by Judge Heyburn:
question is whether the Agreement is valid and, therefore, enforceable. This
question is separate and distinct from who may enforce it and against whom.
conclude that the fact that EMTC did not exist at the time the contract was
entered into did not of itself automatically render the agreement void ab initio.Further, he found that KRS § 275.095
addresses only a liability for executing an agreement on behalf of a
nonexistent entity, and does not provide that “contracts entered into in the
name of the nonexistent entity are null and void.”