Commercial Division Blog
Posted: December 28, 2014 / Categories Commercial, Contracts, Corporations
Officer of Dissolved Corporation Personally Liable For Obligations Incurred By Corporation Post-Dissolution
On December 17, 2014, the Second Department issued a decision in 80-02 Leasehold, LLC v. CM Realty Holdings Corp., 2014 NY Slip Op. 08805, holding that a corporate officer was personally liable for the corporation’s obligations under a commercial lease that was executed after the corporation’s dissolution. The Court explained:
Pursuant to Tax Law § 203-a, the Secretary of State may dissolve a corporation by proclamation for the nonpayment of franchise taxes. Upon dissolution, the corporation's legal existence terminates and it is prohibited from carrying on new business. It retains a limited de jure existence solely for the purpose of winding up its affairs. A person who purports to act on behalf of a dissolved corporation is personally responsible for the obligations incurred. Personal liability is not limited to the person who executes a contract on behalf of a dissolved corporation, but extends to the officers of the dissolved corporation.
(Citations omitted) (emphasis added). The Court went on to reject the defendant officer's argument that the plaintiff had waived its right to recover from him individually by insisting that the corporation sign the lease, despite knowing of the dissolution. This did not constitute a waiver, or grounds for estoppel, because the plaintiff never represented that it would not proceed against the individual officers in the event of a breach.
This decision shows how risky it is to act on behalf of a business entity that it not properly constituted and active.