Pre-Incorporation Contracts

Question 1

What and who is a promoter?

Answer 1

A promoter is a person acting on behalf of a corporation not yet formed. She might enter a contract on behalf of a corporation-not-yet-formed.

Question 2

With regards to pre-incorporation contracts, when does a corporation become liable for contracts?

Answer 2

Generally, the corporation is not liable on pre-incorporation contracts until it adopts the contract.

Question 3

On January 10, P, acting as a promoter for a corporation not yet formed, leases a building from Don Draper and signs the lease “Oscar de la Rental Cars, Inc.” On February 20, Oscar de la Rental Cars, Inc. is formed. Is the corporation liable on the contract? - 2 answers

Answer 3

Yes, if it adopted the contract. How can that happen?

1. Express - board takes an action adopting the contract.
2. Implied - Arises if the corp accepts a benefit of the K, that is just conduct

Question 4

What liability does the promoter have?

Answer 4

Unless the contract clearly says otherwise, the promoter is liable on pre-incorporation contracts until there is a novation

Question 5

What is novation?

Answer 5

A novation is an agreement of the promoter, the corporation, and the other contracting party that the corporation replaces the promoter under the contract

Question 6

Will P be liable on the lease if Oscar de la Rental Cars, Inc. is formed and adopts the lease?

Answer 6

P is liable until novation - Here there is no novation, there was an adoption, what did that do? Both corp and P are liable, promoter is still on the hook 
Headfake here (watch out, novation is needed before the promoter is out of the woods)