Who is ultimately liable if a corporation adopts a pre-incorporation contract?

When a corporation adopts a pre-incorporation contract, both the corporation and the promoter can be held liable. A pre-incorporation contract is one that is entered into by a promoter on behalf of a corporation that has not yet been legally formed. Once the corporation is established and subsequently adopts the contract, it becomes liable for the obligations set forth in that agreement.

At the same time, the promoter remains liable for the contract until the corporation formally adopts it. This dual liability exists because initially, the promoter was the one who negotiated and signed the contract without the corporation's legal existence. Once the corporation officially adopts the contract, it does not relieve the promoter of responsibility unless the contract expressly states otherwise or unless all parties agree to release the promoter from obligations.

This principle ensures that other parties dealing with the corporation can rely on a party being liable for the contracts entered into on behalf of the corporation, maintaining trust in business transactions. Therefore, the situation creates a dual liability where both the newly formed corporation and the promoter can be held accountable for the obligations arising from the pre-incorporation contract.