Question

In August 1995, Smith Company ("Smith") entered into a lease with Jones Two, Inc. ("Jones"). By the terms of the lease, Jones leased a Washington D.C. property (the "Property") that was owned by Smith for a period of ten (10) years.

In 1995, when Jones originally entered into the lease it had not filed its articles of incorporation in any state. However, it represented itself as having been incorporated in New York and Smith relied on that representation. In 1996, Smith realized that Jones was not incorporated but it continued to honor its lease with Jones.

Jones finally got around to properly incorporating in New York in 1997.

At all times, Jones conducted business as if it were a corporation and it complied with all of the terms of the Smith Lease.

By 2000, the value of the Property had increased significantly and Smith was looking for a way to get out of its lease with Jones so it could enter into a lease with a higher rent provision. Smith thought back to the 1995 creation of the lease and it recalled that Jones was not incorporated at that time.

Smith provided Jones with a notice of termination of the lease and directed Jones to vacate the Property within 90 days stating that the lease was void since Jones did not legally exist at the time it entered into the lease. Jones refused to vacated and maintained that it was entitled to use the property until 2005 under the terms of the lease.

Provide an answer to the following questions and be sure to fully explain the reasons for your answer. Be sure to use full sentences and paragraph form in providing your responses.

We know that Jones wants to keep the lease in place until 2005.

4. Could Jones use the concept of a de jure corporation to effectively counter the argument of Smith? Why or why not?

5. Could Jones use the concept of a de facto corporation to effectively counter the argument of Smith? Why or why not?

6. Could Jones use the concept of a corporation by estoppel to effectively counter the argument of Smith? Why or why not?

Each question

Answer 1

4) A corporation can be called as a de jure corporation when all the essential requirements of forming a proper corporation have been fulfilled thereby assigning it a legal status.

Since, Jones didn’t file the articles of incorporation at the time of entering into a lease contract with Smith, it cannot counter the argument of Smith on the basis of the concept of de jure corporation.

5) A de facto corporation is a corporation which although may not be a de jure corporation but there were honest and genuine efforts by the owners of the corporation to form it as a legal entity. Owners of such corporations are provided with limited liability by the courts during judgments.

Since Jones made efforts to incorporate the business in 97 and also got it incorporated as per legal requirements, it can counter the argument of Smith using the de facto corporation concept.

6) Corporation by estoppel means that if a third party already knew that the corporation was not incorporated properly but still accepted its existence, cannot deny later that it did not existed or incorporated as per legal standards to gain favors.

If we look at the above case, we would find that although Smith got to know earlier in 96 that Jones had not incorporated properly it still continued to approve its existence without raising any issue at that time.

Hence, Smith cannot deny later that Jones had filed article of association and was properly incorporated. Thus, Jones can use the Corporation by estoppel concept to effectively counter the argument made by Smith.