Corporate Status. Pat Daniels, John Daniels, and Bill Mandell (the defendants) planned to purchase a tavern and restaurant business in St. Charles, Illinois, and to organize their business in the form of a corporation under the name of D&M, Inc The

Question

defendants negotiated with Howard Realty Group to lease the premises on which the tavern and restaurant were located. While the sale of the business and the negotiation of the lease were proceeding, neither the seller of the business nor Howard contemplated personal guarantees from the defendants. On January 18, 1987, although D&M had not yet been incorporated, the lease was signed in the name of D&M, Inc, by Pat Daniels and Bill Mandell, in their capacity as president and secretary, respectively, of the future corporation. On February 11, 1987, the defendants filed the articles of incorporation for D&M with the secretary of state. The articles were returned by the secretary of state's office because the name "D&M, Inc" was already in use by another Illinois corporation. The defendants then decided to file the articles of incorporation under the name of The Lodge at Tin Cup Pass, Inc (the Lodge). They first checked with the landlord to see if they could use that name, because it was similar to the name of the property, Tin Cup Pass. The Lodge was duly incorporated on March 5, 1987. In late 1988, when the Lodge defaulted on its lease payments, Tin Cup Pass Limited Partnership, to whom Howard had assigned the lease, sued the defendants personally to recover the lease payments due, alleging that the defendants should be held liable as corporate promoters for D&M, Inc, a corporation that was never formed. What will result in court? Discuss fully.

Answer 1

Corporate status
The court held that because the parties intended to create a lease agreement with the cor-poration as lessee, the corporate promoters who signed the lease were not liable. The court stressed that whether personal liability will be placed on a corporate promoter depends upon the intent of the parties. Howard Realty was aware that a corporation was to be formed, and the lease form named D&M, Inc., as the lessee. Additionally, Howard did not seek any personal guarantees from the promoters. In the court's view, the fact that the corporation was not ultimately named D&M, Inc., was a minor discrepancy that should not affect its determination that the parties intended to make the proposed corporation the lessee. There was no evidence that the corporate entity contemplated by the parties at the time of its formation changed in any significant respect other than its name. The court also noted that the corporation was subse-quently treated as the lessee by all parties and held that the corporation had ratified the lease by recognizing it and treating it as valid. The court concluded that "[t]he actions of the parties rendered the lease as valid as if the requisite corporate authority had existed when it was entered into."