Chapter 5 - Promoter's Contract Flashcards
McArthur v. Times Printing (1892)
While a corporation is not bound by engagements made on its behalf by its promoters before its organization, it may, after its organization, make such engagements its own contracts. It is not requisite that such adoption or acceptance be expressed, but it may be inferred from acts or acquiescence on part of the corporation, or its authorized agents.
Adoption is not ratification
Cagayan Fishing v. Sandiko (1937)
That a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a contract or transact any business, would seem to be self evident. . . . A corporation, until organized, has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power to bind it by contract, unless so authorized by the charter. Until organized as authorized by the charter there is not a corporation, nor does it possess franchises or faculties for it or others to exercise, until it acquires a complete existence.
Therefore, it couldn’t have entered into sale.C
Builders Duntile v. Dunn Manufacturing
To deny the corporation the right to sue for damages for the breach of contract and the loss it sustained by reason of the first agent’s negligence and improper acts would be to deny it all remedy for the breach of the contract, for Samuels did not make the contract for himself, and he personally did not sustain the damages.
The corporation only sustained the damages resulting from the breach of the contract.
The contract, though made in the name of Samuels was, as all the parties knew, made in his name for the benefit of the corporation to be organized.
Rizal Light v. PSC (1968)
The fact that a company is not completely incorporated at the time the grant is made to it by a municipality to use the streets does not, in most jurisdictions, affect the validity of the grant. But such grant cannot take effect until the corporation is organized.
Quaker Hill v. Parr (1961)
As a general rule, promoters are personally liable on their contracts, though made on behalf of a corporation to be formed. However, if the contract is made on behalf of the corporation and the other party agrees to look to the corporation and not to the promoters for payment, the promoters incur no personal liability.
In this case, the plaintiff, acting through its agent, was well aware of the fact that the corporation was not formed. It was also established that there was intent on its part to contract with the corporation and not with the individual defendants.
Promoter
Those who undertake to form a corporation and to procure for it the rights, instrumentalities and capital by which it is to carry out the purposes set forth in its charter, and to establish it as fully able to do its business. Their work may begin long before the organization of the corporation and they stand in a fiduciary relationship with the corporation
Old Dominion Copper Mining v. Bigelow
The fiduciary relation must in reason continue until the promoter has completely established according to his plan the being which he has undertaken to create. His liability must be commensurate with the scheme of promotion on which he has embarked. If the plan contemplates merely the organization of the corporation his duties may end there. But if the scheme is more ambitious and includes beside the incorporation, not only the conveyance to it of property but the procurement of a working capital in cash from the public, then the obligation of faithfulness stretches to the length of the plan.
There is a liability of the promoter to the corporation when further original subscribers to capital stock contemplated as an essential part of the scheme of promoters came in after the transaction complained of, even though that transaction is known to all the then stockholders, that is to say, to the promoters and their representatives.
