Corporate Case of Supreme Court of Washington - Essay Example

The case gave the following rule:
- When it cannot be concluded by evidence that the parties to the contract other than the promoter, looked solely to the corporation and not to the promoter for the performance of the contract, the promoter becomes liable for the pre-incorporation contract made by him. As such decision was passed against Goodman, making him liable under the pre-incorporation contract (John A. Goodman, 3).

The Supreme Court of Washington went through a detailed analysis to arrive at the decision, which is mentioned below:

As Goodman or the promoter, in this case, alleged that DDS agreed to look solely to the corporation, he will have the burden of proving the agreement. The release of the promoter depends on the intent of the party while the promoter depends on the agreement. However, Goodman’s arguments that the terms “information” in the contract and “… warranties contained herein shall be construed to have been made between the seller and resultant corporation…” were, in fact, ambiguous as they did not expressly state about the release from personal liability of the promoter (John A. Goodman, 5-6).

While determining whether the trial court’s decision was correct based on the evidence, the court found that the trial court gave its decision in favor of Goodman based on three considerations, which are: 1) DDS knew the corporation did not exist; 2) The fact that Doman was informed by Goodman about the formation of the corporation; and 3) progress payments were made to the corporation. However, the above considerations are not dispositive in any way of the intent of DDS to hold Goodman personally liable. As such the evidence not being substantial to show the intent to release Goodman from his liability, he was held a party to the contract (John A. Goodman, 6- 7).

The decision concurs with the general rule that a promoter is liable for a pre-incorporation contract made for the benefit of a contemplated corporation, which has not yet been organized, and the exception to this rule that the promoter is not a party to the contract, when the other party looks solely to the corporation for performance of the contract, before the corporation is formed (John A. Goodman, 4-5). The Supreme Court’s decision is correct as the promoter was taken to be a party to the contract when it was found that evidence precluded him from coming within the exception and showed that he fell within the ambit of the general rule.