Delaware Business Litigation Report

Superior Court Finds Company to be a De Facto Corporation and Dismisses Individual Defendants from Case

Caudill v. Sinex Pools, Inc., C.A. No. 04C-10-090 WCC, 2006 WL 258302 (Del. Super. Ct. Jan. 18, 2006). In his complaint, the plaintiff, Ken Caudill, alleged that Sinex Pools, Inc. breached its contract to build Caudill an in-ground swimming pool. Subsequently, plaintiff amended his complaint to include Romie Bishop and Shirley Bishop, individually, based on the theory that Sinex Pools, Inc. was not a legal entity. The Bishops moved for summary judgment, arguing that Sinex Pools, Inc., while not formally incorporated, amounted to a de facto corporation. A de facto corporation is a company that was not properly incorporated despite a good faith and bona fide effort, but is still treated as a corporation by the courts. Granting the Bishops' motions for summary judgment, the Superior Court found that they had met the three-pronged test to establish a de facto corporation. According to the Superior Court, in order for a party to prove that a company that has not technically incorporated is a de facto corporation, the party must prove three elements. First, there must be a statute to allow a corporation to lawfully exist. Second, there must be a bona fide attempt to organize and comply with the statutory requirements. Third, there must be actual use or exercise of the corporate powers in pursuance of the law and attempted organization. The Superior Court found that the Bishops satisfied the three elements. First, there is a general incorporation statute that allows for the formation of corporations. Second, although there was no evidence that the Bishops every actually mailed the appropriate forms to the Secretary of State, the court was persuaded that they had made a good faith effort to complete the forms and form the corporation. Finally, Sinex Pools held itself out as a corporation, and it conducted its business as if it were a corporation. Therefore, the court granted the Bishops' motions for summary judgment. Authored by: Jason C. Jowers 302-888-6860 jjowers@morrisjames.com Share