Liability for Preincorporation Contracts. Joe Alexander ...

[kodithompson]

Liability for Preincorporation Contracts. Joe Alexander contracted with Robert Harris for the sale of Harris's business on February 1, 1988. Alexander purported to act on behalf of J & R Construction (J & R), a newly formed corporation. As the incorporators, Joe and Rita Alexander and Avanell Looney signed the articles of incorporation for J & R on the same day that Joe contracted with Harris. The articles were not filed with the secretary of state, however, until February 3. When J & R defaulted on its payments due under the contract with Harris in 1991, Harris sued the Alexanders and Looney personally for the 49,696.21 still owed. The trial court held Joe Alexander personally liable for the debt (because he had signed the contract with Harris) but not Rita Alexander or Avanell Looney. The relevant state statute imposes joint and several liability on those purporting to act as, or on behalf of, a corporation while knowing that the corporation has not yet come into existence. On appeal, Harris argued that because the Alexanders and Looney acted on behalf of J & R while knowing that no corporation existed, all three incorporators should be held jointly and severally liable as partners. Did Rita Alexander and Avanell Looney also act as, or on behalf of, the corporation? On appeal, how should the court decide?

Question 2

If either the principal or agent dies, the agency relationship is suspended until replacements continue the agency's purpose.
 a. True
  b. False
  Indicate whether the statement is true or false

[jamesnevil303]

Answer to Question 1

Liability for preincorporation contracts
The appellate court agreed with the trial courtAlexander and Looney had not acted on behalf of the corporation, and thus, they were not liable to Harris. In passing the state's business corporation act, the appellate court pointed out, the Arkansas General Assembly adopted a heightened standard for imposing personal liability for transactions entered into before incorporation. The act requires that to find liability on the part of persons is such positions as Alexander and Looney, there must be a finding that the persons sought to be charged acted as or on behalf of the corporation and knew there was no incorporation under the Act. In this case, the contract to purchase Harris's business and the promissory note were signed only by Joe Alexander on behalf of the corporation. The only evidence introduced to support the allegation that Alexander and Looney were acting on behalf of the corporation was their statements that they were present when the contract was signed (and this evidence was disputed).

Answer to Question 2

FALSE

[kodithompson]

Excellent

[epscape]

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