Asbestos Workers Local Union No. 32 v. Shaughnessy

A-3352-96T5, 1997 WL 776147 (N.J. Super. App. Div. 1997)
  • Opinion Date: November 5, 1997

CORPORATIONS; LIABILITY—Even though a company’s corporate charter was suspended (revoked) for failure to file annual reports and the company therefore was technically in dissolution, the individual officers were not held personally liable on a contract because the creditor didn’t rely on the officers’ personal credit. In addition, reinstatement is retroactive to the date of revocation.

A construction company entered into a collective bargaining agreement during a period in which the company’s charter was suspended for failure to file an annual report. At the time of the agreement, neither the company nor the union knew of the suspension of the charter. Upon a summary judgment motion to hold the officers individually liable for the company’s debts, the trial judge held that while the charter was suspended, the company was technically in dissolution and the officers of the company were individually liable for debts arising under contracts signed on behalf of the company.

The Appellate Division reversed on two grounds. First, it held that the union did not rely on the credit or assurances of the individuals representing the company, but made an agreement with what it thought was a viable company. Furthermore, to hold that the company was in dissolution at the time its charter was suspended would mean having to completely invalidate the contract signed with the union, or to find the company’s officers guilty of fraud, since the applicable statute [N.J.S.A. 14A:12-9(1)] prohibits the carrying on of any business (other than the winding up of company affairs) of a dissolved or dissolving company. Clearly, there was no intention on the part of the company to wind up its business or fraudulently induce the workers union to sign the agreement. The second reason for reversal was the provision of N.J.S.A. 14A:4-5(7) that reinstatement of a revoked certificate of incorporation is retroactive to the date of revocation and validates all actions taken in the interim. Since the reinstatement validated the agreement with the union, there was no reason to hold the company’s officers personally liable, unless there was fraud or express reliance on the individual credit of the officers.