Ratner v. Central Nat. Bank of Miami
34 U.C.C. Rep. Serv. (West) 228, 1982 Fla. App. LEXIS 19811, 414 So. 2d 210 (1982)
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Rule of Law:
A promoter who enters into a contract on behalf of a corporation that has not yet been legally formed is personally liable for that contract. This liability is not extinguished by the corporation's subsequent formation and ratification of the contract unless the other contracting party agrees to a novation or expressly releases the promoter.
Facts:
- On November 3, 1978, Joel S. Ratner signed a merchant's Mastercharge agreement with Central National Bank of Miami.
- Ratner signed the agreement in the name of 'The Stereo Corner, Inc.'
- At the time the contract was signed, 'The Stereo Corner, Inc.' was not a legally formed corporation.
- The Stereo Corner, Inc. was officially incorporated on July 10, 1979, over eight months after the agreement was executed.
- Between April and October 1979, an employee of Stereo Corner submitted numerous forged credit card sales drafts, causing financial loss to the bank.
- Central National Bank was unable to collect from the Mastercharge Center on the forged drafts.
- The Stereo Corner, Inc. subsequently became insolvent, preventing the bank from recouping its losses from the corporate account.
Procedural Posture:
- Central National Bank of Miami sued Joel S. Ratner in a Florida trial court.
- The trial court entered a summary judgment in favor of Central National Bank, finding Ratner personally liable for $32,756.56.
- Joel S. Ratner, the appellant, appealed the summary judgment to the District Court of Appeal of Florida, Third District.
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Issue:
Is a person who signs a contract on behalf of a yet-to-be-formed corporation personally liable for debts arising under that contract, even if the corporation is later formed and adopts the agreement?
Opinions:
Majority - Judge Ferguson
Yes. A person who signs a contract on behalf of a non-existent corporation is personally liable for that contract. The court held that under Florida law, a corporate promoter is liable for pre-incorporation contracts unless the other party explicitly agrees to look to another fund for payment. The subsequent formation of the corporation and its ratification of the contract do not, by themselves, release the promoter from liability. For the promoter to be released, there must be a novation or an express release by the other party. The court also rejected Ratner's claim of a 'de facto corporation,' stating that one cannot exist where there was no attempt to file incorporation documents until eight months after entering into the contract. Ratner's other arguments regarding the bank's duty of care were deemed irrelevant to his personal liability on the contract itself.
Analysis:
This case solidifies the principle of promoter liability in Florida, underscoring the risk assumed by individuals who act on behalf of a corporation before its legal formation. It clarifies that corporate ratification of a pre-incorporation contract does not automatically create a novation that would release the promoter. The decision serves as a clear warning to entrepreneurs that they must secure an express release or novation to avoid personal liability for contracts they sign prior to incorporation. This places a high burden on promoters to ensure their corporate formalities are complete before engaging in binding agreements.
