The court held that yes, Goodman can be held personally liable for the renovatio

Question

The court held that yes, Goodman can be held personally liable for the renovation contract with DDS. A corporation becomes liable for a contract entered into by a promoter before the corporation was formed if it agrees to be bound by ratification, adoption, or novation. Liability for the contract does not automatically transfer because the promoter was acting as the agent of a nonexistent principal when the contract was entered into. In this case, ratification of the promoter’s contracts was not allowed in the state of Washington, and no novation had occurred place. Therefore, if the newly formed corporation chose to be bound by the renovation contract, it would have to be by adoption. Upon adoption, the corporation becomes liable for the contract. Using a minimum of three sentences, a) Do you agree with the court's ruling? b) Why or why not?

Explanation / Answer

The court's ruling is agreeable, because according to common-law, it is not possible for a non-existent company to enter into an enforceable contract. Before incorporation, company has no legal status to attain contractual rights or sustain contractual liabilities that arise from pre-incorporation contract, unless the company agrees to be bound by ratification, adoption or novation. In absence of ratification and novation, only adoption can make the company liable for the contract.

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