The XYZ Corporation and Leasing Agreements: Legal Perspective
The XYZ Corporation Background
The XYZ Corporation was to be formed by Peter, a promoter. To operate the corporation after incorporation, it was necessary for Peter to lease certain facilities. Peter executed a lease in the corporate name for office space without revealing to the lessor that the corporation had not yet been organized. The corporation subsequently came into existence, and the board declined to accept the lease of office space that Peter had executed in the corporate name.
Review Questions and Problems
a. Can the corporation validly decline the lease of office space? Explain.
b. Does Peter have any liability on any of the leases he made? Explain.
Answers
a. Yes, the corporation can validly decline the lease of office space.
b. Peter may have liability on the lease he made.
a. The corporation can validly decline the lease of office space because Peter, as a promoter, executed the lease before the corporation came into existence. Until the corporation is formed, it does not have legal existence or capacity to enter into contracts. Therefore, the board of directors, who act on behalf of the corporation, can reject or decline the lease that Peter executed. The corporation is not bound by any contracts entered into by the promoter prior to its formation.
b. Peter may have liability on the lease he made. As the promoter who executed the lease, Peter acted on behalf of the future corporation. However, since the corporation declined to accept the lease, Peter may be personally liable for the lease obligations. When a promoter acts on behalf of a corporation that has not yet been formed, they may be personally liable for any contracts or obligations entered into on behalf of the future corporation. The lessor can potentially hold Peter accountable for the lease, even though the corporation did not accept it.
To know more about Lease
Review Questions and Problems: a. Can the corporation validly decline the lease of office space? Explain. b. Does Peter have any liability on any of the leases he made? Explain. Answers: a. Yes, the corporation can validly decline the lease of office space. b. Peter may have liability on the lease he made. a. The corporation can validly decline the lease of office space because Peter, as a promoter, executed the lease before the corporation came into existence. Until the corporation is formed, it does not have legal existence or capacity to enter into contracts. Therefore, the board of directors, who act on behalf of the corporation, can reject or decline the lease that Peter executed. The corporation is not bound by any contracts entered into by the promoter prior to its formation. b. Peter may have liability on the lease he made. As the promoter who executed the lease, Peter acted on behalf of the future corporation. However, since the corporation declined to accept the lease, Peter may be personally liable for the lease obligations. When a promoter acts on behalf of a corporation that has not yet been formed, they may be personally liable for any contracts or obligations entered into on behalf of the future corporation. The lessor can potentially hold Peter accountable for the lease, even though the corporation did not accept it.