Arthur, Barbara, Carl, and Debra decided to form a corporation for bottling
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Arthur, Barbara, Carl, and Debra decided to form a corporation for bottling and selling apple cider. Arthur, Barbara, and Carl were to operate the business, while Debra was to supply the necessary capital but was to have no voice in the management. They went to Jane, a lawyer, who agreed to organize a corporation for them under the name A-B-C Inc., and paid her funds sufficient to accomplish the incorporation. Jane promised that the corporation would definitely be formed by May 3. On April 27, Arthur telephoned Jane to inquire how the incorporation was progressing, and Jane said she had drafted the articles of incorporation and would send them to the secretary of state that very day. She assured Arthur that incorporation would occur before May 3. On May 4, relying on Jane’s assurance, Arthur, with the approval of Barbara and Carl, entered into a written contract with Grower for his entire apple crop. The contract was executed by Arthur on behalf of “A-B-C Inc.” Grower delivered the apples as agreed. Unknown to Arthur, Barbara, Carl, Debra, or Grower, the articles of incorporation were never filed, through Jane’s negligence. The business subsequently failed. Explain what Grower’s rights are, if any, against Arthur, Barbara, Carl, and Debra as individuals. |
Explanation
The following techniques can be used to explain the situation:
In this situation, A, with the permission of B and C, entered into a formal contract with G on behalf of the planned "ABC" corporation. The partner's counsel, on the other hand, failed to create the business before May 3 by filing an AOA, which was never rejected.
Promoters are those who are in charge of raising finances, preparing and filing paperwork for the company's formation, and entering into contracts with numerous vendors and suppliers. As a result, we can say that a promoter is a person who starts a corporation and is liable for any legal repercussions that may arise prior to the company's incorporation.
Due to the theory of 'promoter's responsibility,' the vendor G has the right to sue the ABC inc. promoters in the provided firm. The obligation put on the hands of the promoters' business prior to the company's formation is known as promoters liability. As a result, in the event that the promoter breaches the contract, the other contractual party has the right to hold the promoter personally responsible for the damages.
The court decided in Coopers & Lybrand v Fox 768 p.2d 683 that promoters are typically responsible for the contracts they make on behalf of the business. This hasn't been taken into account yet.
This is owing to the fact that one cannot serve as an agent for a principle who does not exist.
As a result, under the promoter responsibility theory, A, B, and C will be held personally responsible for the non-performance of the contract agreed into by A and G. G has the right to sue the promoters for damages if the contract is not fulfilled. All three promoters will be individually responsible because B and C allowed the relationship between A and G. D, on the other hand, will not be held responsible because she was not a party to the contract and did not ratify it.
Answer
A legal contract is a commitment made by one party to another to carry out specific actions. A contract is a legally enforceable agreement. A contracting party can sue the other for non-performance.
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