RKO-Stanley Warner Theatres, Inc. v. Graziano - 467 Pa. 220, 355 A.2d 830 (1976)

Rule:

The imposition of personal liability upon a promoter where that promoter has contracted on behalf of a corporation is based upon the principle that one who assumes to act for a nonexistent principal is himself liable on the contract in the absence of an agreement to the contrary. There is an inference that a person intends to make a present contract with an existing person. If, therefore, the other party knows that there is no principal capable of entering into such a contract, there is a rebuttable inference that, although the contract is nominally in the name of the nonexistent person, the parties intend that the person signing as agent should be a party, unless there is some indication to the contrary.

Facts:

On April 30, 1970, RKO-Stanley Warner Theatres, Inc., [RKO], as seller, entered into an agreement of sale with Jack Jenofsky and Ralph Graziano, as purchasers. This agreement contemplated the sale of the Kent Theatre, a parcel of improved commercial real estate located at Cumberland and Kensington Avenues in Philadelphia, for a total purchase price of $70,000. Settlement was originally scheduled for September 30, 1970, and, at the request of Jenofsky and Graziano, continued twice, first to October 16, 1970 and then to October 21, 1970. However, Jenofsky and Graziano failed to complete settlement on the last scheduled date. Subsequently, on November 13, 1970, RKO filed a complaint in equity seeking judicial enforcement of the agreement of sale. Although Jenofsky, in his answer to the complaint, denied personal liability for the performance of the agreement, the chancellor, after a hearing, entered a decree nisi granting the requested relief sought by RKO. Exceptions to the decree of the chancellor were filed and dismissed by the court en banc which directed that the decree nisi be entered as a final decree. This appeal ensued

Issue:

Was the lower court's decree nisi granting RKO equitable enforcement of an agreement of sale against Jenofsky, in his capacity as promoter for the corporation at the time of the agreement, proper?

Answer:

Yes

Conclusion:

The court affirmed the lower court's decree nisi granting RKO equitable enforcement of an agreement of sale against Jenofsky. The court held Jenofsky, in his capacity as promoter for the corporation at the time of the agreement, was personally liable on the agreement made by him for the benefit of the corporation he intended to organize. The agreement's provision that, upon incorporation, the corporation would take Jenofsky’s place was ambiguous because it was silent as to the effect the formation of the projected corporation would have upon appellant's personal liability. In light of the ambiguity, the court held that the only rational and prudent interpretation of the parties' intent was that Jenofsky (and Graziano) was to be personally responsible until such time as the corporate entity was formed and had ratified the agreement. A construction that the parties intended to release Jenofsky’s personal responsibility upon mere incorporation was illogical and unreasonable because RKO, in the event of non-performance, would not be able to hold any party accountable.