Submitted by: Submitted by grapes66
Views: 462
Words: 1197
Pages: 5
Category: Business and Industry
Date Submitted: 12/02/2012 09:36 PM
36.11
Business Ethics John A. Goodman was a real estate salesman in the state of Washington. Goodman sold to Darden, Doman & Stafford Associates (DDS), a general partnership, an apartment building that needed extensive renovation. Goodman represented that he personally had experience in renovation work. During the course of negotiations on a renovation contract, Goodman informed the managing partner of DDS that he would be forming a corporation to do the work. A contract was executed in August between DDS and “Building Design and Development (In Formation), John A. Goodman, President.” The contract required the renovation work to be completed by October 15. Goodman immediately subcontracted the work, but the renovation was not completed on time. DDS also found that the work that was completed was of poor quality. Goodman did not file the articles of incorporation for his new corporation until November 1. The partners of DDS sued Goodman to hold him liable for the renovation contracts. Goodman denied personal liability. Was it ethical for Goodman to deny liability? Is Goodman personally liable? Goodman v. Darden, Doman & Stafford Associates, 100 Wn.2d 476, 670 P.2d 648, Web 1983 Wash. Lexis 1776 (Supreme Court of Washington)
Goodman can be held personally liable for the renovation contracts with DDS. A corporation becomes liable for a contract entered into by an agent before the corporation was formed if it agrees to be bound by ratification, adoption, or novation. Liability for the contract does not automatically transfer because the agent was acting as the agent of a nonexistent principal when the contract was entered into. Ratification of the agent’s contracts was not allowed in the state of Washington and no novation had occurred. Therefore, if the newly formed corporation chose to be bound by the renovation contract it would have to be by adoption. Upon adoption, the corporation becomes liable for the contract. However, the agent remains personally liable on...