Dennis is a promoter for the soon-to-be-incorporated firm of eBroadcast Sports,

Question

Dennis is a promoter for the soon-to-be-incorporated firm of eBroadcast Sports, Inc. Dennis signs a contract with Fitz & Geraldo, Accountants, to render their services before eBroadcast Sports is incorporated and for one year after the incorporation. eBroadcast Sports is incorporated. Three months later, after Fitz & Geraldo has continued performing under the contract, the eBroadcast Sports board of directors tells the accountants that it is canceling their contract. Fitz & Geraldo files a suit against Dennis and eBroadcast Sports, alleging breach of contract.Will Fitz & Geraldo prevail? Why or why not?

Explanation / Answer

As per common law, a company has no legal status to enter into a contract before it comes into existence by incorporation. The company cannot assume any contractual rights or liabilities prior to its incorporation. The contract with Fitz & Geraldo was entered into by the promoter in individual capacity, before the company eBroadcast Sports was incorporated. So it's a personal liability of Dennis to perform the contract. The company is not bound by the terms and conditions of the contract, unless by ratification, novation or adoption. Therefore suit filed by Fitz & Geraldo against eBroadcast Sports will not prevail.

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