Question

In 2004, Stephanie entered into a contract with Laura for the design and installation of custom crafted window treatments. The window treatments were constructed of chemically infused wormwood and came with an express guarantee to keep a minimum of 99 percent of sunlight out of the home for ten years. Before entering into the contract, Laura told Stephanie that she had just recently developed the treated wormwood and had yet to form a corporation, however, her new company would be called "Wormwood Windows, Inc." Laura signed the contract "Laura, for Wormwood Windows, Inc.," and Stephanie paid the agreed upon price of $50,000 with a check made out to the corporation. Two months later the corporation filings were approved by the state, and Laura deposited the $50,000 into her business account. In 2009, Stephanie noticed that the wormwood window treatments began to crack internally and outside light began to seep through the treatments into her home. Stephanie contacted Laura about the problem and demanded that Laura make good on her guarantee. Laura insists that there is no guarantee because the contract was entered into before the formation of the corporation. What should Stephanie say to Laura about the liability of both Wormwood and Laura

Answer 1

Laura may be liable under the doctrine of pre-incorporation contracts, and Wormwood Windows, Inc. could also be liable if it adopted the contract after formation.

Step-by-step explanation:

Stephanie can assert that Laura may be personally liable for the performance of the contract despite the subsequent formation of Wormwood Windows, Inc. Under the legal doctrine known as pre-incorporation contracts, individuals who enter into contracts on behalf of corporations that have not yet been formed are personally liable for those contracts. Since Laura signed the contract 'for Wormwood Windows, Inc.' before the corporation was legally formed, Stephanie can argue that Laura acted as a promoter for the non-existent corporation and is therefore personally liable for the contract's obligations, including the express guarantee. Additionally, Stephanie could also assert that the corporation may be liable if it implicitly or explicitly adopted the contract after it was formed, especially since Laura deposited the full contract amount into the corporation's account, which can be seen as an affirmation of the contract by the corporation.