Stanley J. How & Associates, Inc. v. Boss
1963 U.S. Dist. LEXIS 6668, 222 F. Supp. 936 (1963)
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Rule of Law:
A promoter who enters into a pre-incorporation contract on behalf of a non-existent corporation is personally liable on that contract, unless the other party expressly agrees to look solely to the future corporation for payment.
Facts:
- Edwin A. Boss, a promoter, sought to develop a motor hotel and restaurant project.
- On April 20, 1961, Boss entered into a contract with architect Stanley J. How and Associates, Inc. for architectural services.
- Before signing, Boss unilaterally altered the signature line of the agreement to read: "By: Edwin A. Boss, Agent for a Minnesota Corporation to be formed, who will be the Obligor."
- How observed and consented to the modified signature, and both parties executed the agreement.
- How's firm fully performed its duties by preparing and completing detailed plans and specifications for the project.
- The promoters made two partial payments to How from a newly formed Iowa corporation, Minneapolis-Hunter Hotel Co., totaling $14,500.
- Ultimately, Boss and his associates abandoned the hotel project, leaving a substantial balance owed to How for the architectural services.
Procedural Posture:
- Stanley J. How and Associates, Inc. (plaintiff) filed a lawsuit against Edwin A. Boss (defendant) in U.S. District Court (a federal trial court).
- The plaintiff sued for breach of contract, seeking the unpaid balance for architectural services rendered.
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Issue:
Does a promoter avoid personal liability on a pre-incorporation contract by signing as an "agent for a Minnesota corporation to be formed who will be the obligor"?
Opinions:
Majority - Hanson, District Judge.
No. A promoter is not relieved of personal liability on a pre-incorporation contract unless the other party explicitly agrees to look solely to the future corporation for payment. The language "who will be the obligor" is ambiguous because it connotes a future event and does not identify a present obligor, nor does it expressly release the promoter from current liability. The court applied several rules of contract interpretation: 1) ambiguities are construed against the drafter (Boss); 2) the contract's payment schedule required substantial payments before the corporation could be formed, implying the intent for a present obligor; and 3) there is a legal inference that a person signing for a non-existent principal intends to be personally bound. Alternatively, even if the contract intended to shift liability, the promoter is still liable for abandoning the project, which prevented the corporation from assuming the obligation.
Analysis:
This case reinforces the strong default rule of promoter liability for pre-incorporation contracts. It establishes that merely indicating a future corporation will be the obligor is insufficient to absolve the promoter of personal liability; the language must clearly and unambiguously reflect an agreement to release the promoter. The decision emphasizes that courts will look at the entire context, including payment terms and performance schedules, to determine the parties' intent. Furthermore, it provides an alternative basis for liability by holding that a promoter who frustrates the creation or viability of the intended corporation cannot then use that corporation's failure as a shield.
