Pre-Formation Contract Liability

Question 1

Promoter

Answer 1

A promoter is a person who acts on behalf of a corporation that has not been formed.

Question 2

Promoter Liability

Answer 2

A promoter is personally liable for any liabilities arising from their conduct when:
1) he purports to act as or on behalf of a corporation
2) knowing that no corporation was formed

Question 3

Promoter’s Liability After Corporation

Answer 3

A promoter remains personally liable for pre-incorporation contracts even if the corporation subsequently adopts the contract.

not liable if novation or contractual indemnity

Question 4

Corporation Liability on Promoter Contract

Answer 4

A corporation is not liable on pre-incorporation contracts entered into by a promoter UNLESS the corporation expressly or impliedly adopts the contract post-incorporation.

express or implied adoption

Question 5

Implied Adoption of Contract

Answer 5

Implied adoption occurs when the corporation:
1) has reason to know or knows the material terms of the contract, and
2) accepts some benefit from the contract

Question 6

De Facto Corporation

Answer 6

Defective corporation enjoys the same benefits and powers of a properly formed corporation when the entity:
1) made a good faith attempt to incorporate
2) is otherwise eligible to incorporate
3) and took some action indicating it considered itself a corporation

only if unaware that corp was not properly formed

Question 7

Incorporation by Estoppel

Answer 7

Doctrine that any person or entity that treated a business as a corporation may be estopped from denying that the business is a corporation, even if a valid corporation was not formed.

does not apply to tort actions