Pam and Sam are promoters for Kale Corporation.Prior to its incorporation,Pam negotiated several preincorporation contracts with Ian,an investor.She signed each contract in the name of Kale Corporation.Kale subsequently was incorporated,but the Kale Board of Directors refused to adopt the contracts.Ian later sues Kale,Pam,and Sam on the contracts.Who is liable?

Question

Quizplus · Accepted Answer

Promoters are generally held liable on contracts they make on behalf of corporations that are not yet formed.If the corporation is never formed,or if it fails to adopt the promoter's preincorporation agreement,the promoter is liable.This is based on agency law: An agent who makes a contract for a nonexistent principal is personally liable for it.If there is more than one promoter,they are all liable under a joint enterprise theory.

Pam and Sam Are Promoters for Kale Corporation