[WSBARP] Transfer of title to entity that did not exist

[Eric Nelsen]

Interesting. I think the answer is in the intersection of pre-incorporation acts of a corporation, and in conveyance rules regarding status of a grantee.

From the WSBA Real Property Deskbook, Vol. 1, Sec. 5.5(3):

As a general rule, the grantee must be a legal entity at the time of the grant; otherwise the transfer is void. Loose v. Locke, 25 Wn.2d 599, 171 P.2d 849 (1946). It seems, however, that courts will go to some length to avoid this result. In a later decision, a court held that a deed to a corporation, made prior to its organization, was valid between the parties, and title passed when the corporation was legally incorporated. John Davis & Co. v. Cedar Glen No. Four, Inc., 75 Wn.2d 214, 450 P.2d 166 (1969). By analogy, this reasoning should apply to limited partnerships and limited liability companies, which also come into existence when the articles of formation are accepted by the state.

But, also from the Deskbook, Sec. 5.6(3):

As a general rule, unincorporated associations (such as fraternal lodges, churches, or other religious, patriotic, or social organizations) cannot hold title to real property because they are not legal entities. Grand Grove of U.A.O.D. v. Garibaldi Grove, No. 71, of U. A.O.D., 105 Cal. 219, 38 P. 947 (1894). Real property held in the name of this type of association generally is recognized as being owned by the members of the association. When one or more members take action with respect to such property, they are considered to be trustees, acting on behalf of the membership, in accordance with the by-laws and regulations of the organization.

I know that's not directly on point, but what is a group of people acting like a corporation, without the formalities, but an "unincorporated association"? See RCW 23B.02.040:

Liability for preincorporation transactions.
All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this title, are jointly and severally liable for liabilities created while so acting except for any liability to any person who also knew that there was no incorporation.
[1989 c 165 § 29.]

Plus, case law on the status of "corporate acts" made prior to actual incorporation. I don't have cites but I'm sure it's out there.

Plus, will the IRS really be governed by state law when it comes to determining whether the pre-incorporation gifts were effective. If the John Davis & Co rule holds, does that mean that all the pre-incorporation gifts suddenly "became effective" upon incorporation, and so were all made simultaneously in the same year?

That's what I've got.

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA  98101-2837
phone 206-625-0092
fax 206-625-9040




From: wsbarp-bounces at lists.wsbarppt.com [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Jennifer Y. Sohn
Sent: Thursday, March 19, 2015 4:33 PM
To: 'WSBA Real Property Listserv'
Subject: [WSBARP] Transfer of title to entity that did not exist

I have an interesting situation where the clients (H&W) transferred their interest in real property to a company that was not formed until about 8 years after the transfer. During those 8 years, for purposes of estate planning, the H&W made various gifts to the children of the company interests. The company was actually formed about 8 years after H&W deeded the property to the company. Does this mean the transfer that the H&W made 8 years ago is void? The clients were confused too, and they also transferred some of their interest in the property to a trust too. I’m just trying to untangle this.

Any insights would be appreciated.

Thanks.


Best regards,

Jennifer Y. Sohn
Attorney at Law
(Licensed in CA and WA)
Sohn Law PLLC
10900 NE 4th Street, Suite 1850
Bellevue, WA 98004
Tel: 206.617.7874
Fax: 425.732.9748
Email: jennifer at sohn-law.com<mailto:jennifer at sohn-law.com>
http://www.sohn-law.com<http://www.sohn-law.com/>

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