posted by Bryan on .
CASE PROBLEM: Three brothers inherited a small paper-supply business from their father, who had operated the business as a sole proprietorship. The brothers decided to incorporate under the name Miwa Corp. and retained an attorney to draw up the necessary documents. The attorney drew up the papers and had the brothers sign them but neglected to send the application for a corporate charter to the secretary of state's office. The brothers assumed that all necessary legal work had been taken care of, and they proceeded to do business as Miwa Corp. One day, a Miwa Corp. employee was delivering a carton of paper supplies to one of Miwa's customers. On the way to the customer's office, the employee negligently ran a red light and caused a car accident. Harman, the driver of the other vehicle, was injured as a result and sued Miwa Corp. for damages. When Harman learned that no state charter had ever been issued to Miwa Corp., he sued each of the brothers personally for damages. Can the brothers avoid personal liability for the tort of their employee? Explain.
Please post your ideas on this problem, and someone here will be happy to comment on your ideas.
this is what i think
In this case Miwa Corp. probably has de facto status which would mean that the existence of the corporation can only be challenged by the state, not by Harman because he is a third party. There are three elements required for de facto status (this is all coming from page 778). There must be a state statute under which the corporation can be validly incorporated, and although the case does not specifically say which state Miwa Corp. is in there are state statutes in every state that will allow them to be validly incorporated. The second is that the parties must have made a good faith attempt to comply with the statute. By hiring the attorney to take care of all the details and signing the state charter, the brothers have made a good faith attempt to comply. They did not know that the attorney had not sent the papers. Lastly, the enterprise must already have undertaken to do business as a corporation, and clearly they have been operating as Miwa Corp. not knowing that their corporate charter was not sent in.