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S.-Gulf Marine Co. No. 9, Inc. v. Camcraft, Inc. - 410 So. 2d 1181 (La. Ct. App. 1982)

Rule:

One who contracts with what he acknowledges to be and treats as a corporation, incurring obligations in its favor, is estopped from denying its corporate existence, particularly when the obligations are sought to be enforced. If a party has no other objection to oppose to the enforcement of the contract than that the obligee is incompetent to sue, for reasons anterior to his contract, he should not be permitted to escape liability. The case would be different where the incompetency is the result of something happening subsequent to the contract, or last acknowledgement of existence and capacity. It is a familiar principle that one cannot be permitted to play fast and loose, so as to take advantage of his own unfair vacillations. 

Facts:

Southern-Gulf Marine Co. No. 9, Inc. (“Southern-Gulf”) contracted with Camcraft, Inc. (“Camcraft”) for the purchase and sale of a supply ship which the Camcraft was to construct. The contract indicated that Southern-Gulf was an extant Texas corporation, when in fact it had yet to be organized under the laws of any state. Subsequently Camcraft was informed that Southern-Gulf had been incorporated under the laws of the Cayman Islands. Still later, probably because of appreciation in the price the vessel might fetch, Camcraft balked at delivering it to the Southern-Gulf. Southern-Gulf filed suit alleging breach of a contract to furnish a ship. Camcraft responded with a peremptory exception of no cause of action based upon the Southern-Gulf’s lack of corporate existence at the time of entering into the contract, and Southern-Gulf's subsequent incorporation under the laws of a sovereign different than that represented in the contract. The motion was sustained and Southern-Gulf appealed.

Issue:

Did the district court err in in holding that the Southern-Gulf’s lack of legal status at the time of contracting was an impediment to its maintenance of this action?

Answer:

Yes

Conclusion:

The Court held that the trial court committed legal error in holding that the Southern-Gulf’s lack of legal status at the time of contracting was an impediment to its maintenance of this action. The Court held that absent some prejudice to its substantial rights, the Camcraft was estopped to escape performance by raising the issue of the Southern-Gulf’s prior lack of de jure status. The Court noted that both parties relied on the contract, and that the contract was fully enforceable against Southern-Gulf, notwithstanding that it was only a de facto corporation when it entered into the contract.

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