INCORPORATION BY ESTOPPEL

TY Bldrs. II, Inc. v 55 Day Spa, Inc., 2018 NY Slip Op 08345, Decided on December 5, 2018, Appellate Division, Second Department:

""Since a nonexistent entity cannot acquire rights or assume liabilities, a corporation which has not yet been formed normally lacks capacity to enter into a contract" (Rubenstein v Mayor, 41 AD3d 826, 828; see 442 Decatur St., LLC v Spheres Realty, Inc., 14 AD3d 535, 536; Farrell v Housekeeper, 298 AD2d 488, 489). However, a corporation may be deemed to exist and possess the capacity to contract pursuant to the doctrine of incorporation by estoppel (see Boslow Family Ltd. Partnership v Glickenhaus & Co., 7 NY3d 664, 668; JCL Props., LLC v Equity Land Developers, LLC, 102 AD3d 745, 746; Rubenstein v Mayor, 41 AD3d at 828). The doctrine of incorporation by estoppel, or corporation by estoppel, is based on the principle that "one who has recognized the organization as a corporation in business dealings should not be allowed to quibble or raise immaterial issues on matters which do not concern him [or her] in the slightest degree or affect his [or her] substantial rights" (Boslow Family Ltd. Partnership v Glickenhaus & Co., 7 NY3d at 668 [internal quotation marks omitted]). There is no question that the defendants, regardless of the technical status of TY Builders, LLC, or TY Builders II, LLC, at the time the lease documents were signed, agreed to enter into a lease for certain premises owned by Weiss, the principal of those later-formed entities, and were granted legal access and possession of those premises in exchange for the promise of the payment of rent. The defendants do not dispute that 55 Day Spa failed to pay rent as directed under the lease or that Peterson had personally guaranteed the monthly lease payments. The evidence demonstrates that the parties engaged in the subject business transactions and the defendants received the benefit of possession of the property. Consequently, the defendants are estopped from using the plaintiff's lack of proper incorporation to escape liability under the lease (see Boslow Family Ltd. Partnership v Glickenhaus & Co., 7 NY3d at 668; JCL Props., LLC v Equity Land Developers, LLC, 102 AD3d at 746; Rubenstein v Mayor, 41 AD3d at 828). As such, we agree with the Supreme Court's determination to deny the defendants' cross motion, in effect, for summary judgment dismissing the amended complaint on this ground."