Chapter 38

Chapter 38 - Neha Shah Chapter 38 Professor Rodriguez...

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Neha Shah Chapter 38 Professor Rodriguez October 23 rd , 2011 38-2 (a) As a general rule, a promoter is personally liable for all preincorporation contracts made by the promoter. The basic theory behind such liability is that the promoter cannot be an agent for a nonexistent principal (a corporation not yet formed). It is immaterial whether the contracting party knows of the prospective existence of the corporation, and the general rule of promoter liability continues even after the corporation is formed. Three basic exceptions to promoter liability are: (1) The promoter’s contract with a third party can stipulate that the third party will look only to the new corporation, not to the promoter, for performance and liability. (2) The third party can release the promoter from liability. (3) After formation, the corporation can assume the contractual obligations and liability by novation . (If it is by adoption, most courts hold that the promoter is still personally liable.) Peterson is therefore personally liable on both
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This note was uploaded on 11/13/2011 for the course ECON 201 taught by Professor Bonistis during the Spring '11 term at NJIT.

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Chapter 38 - Neha Shah Chapter 38 Professor Rodriguez...

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