McArthur v. Times Printing Co. - 48 Minn. 319, 51 N.W. 216 (1892)

Rule:

While a corporation is not bound by engagements made on its behalf by its promoters before its organization, it may, after its organization, make such engagements its own contracts. And this it may do precisely as it might make similar original contracts; formal action of its board of directors being necessary only where it would be necessary in the case of a similar original contract. 

Facts:

D. A. McArthur alleged that Times Printing Company contracted with him for a period of one year and that Times discharged him in violation of its contract. Times argued that McArthur’s employment was from week to week and that he was discharged with good cause. Trial court found for McArthur, as the evidence showed that a promoter had made the contract on behalf of Times while Times was contemplating organization of corporation. Evidence further showed that after organization, Times’ board never took any formal action with regards to the contract, but that all of its stockholders, directors, and officers knew of the contract and they retained McArthur without implementing any new contracts. Times appealed decision.

Issue:

Was Times bound by the contract made by its promoter?

Answer:

Yes.

Conclusion:

Court affirmed judgment, holding that while Times was not bound by the contract made by its promoter before its organization, after its organization, it made the contract on its own by acquiescing in McArthur’s employment by retaining him without other contracts.