Court Rejects Notion that Contract with Nonexistent Corporation is Void Ab Initio

Court Rejects Notion that Contract with Nonexistent Corporation is Void Ab Initio

 

In a 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).

 

Pharmacogenetics 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 assumed name.

 

Ultimately, 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:

 

The threshold question is whether the Agreement is valid and, therefore, enforceable. This question is separate and distinct from who may enforce it and against whom.

 

He would 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.”