Also known as: forming a new contract · new contract formation · contract formation
Written by attorneys · grounded in primary & secondary sources — see below
A theory explaining how a corporation becomes liable on a promoter's preincorporation contract. The corporation enters into a fresh agreement with the other contracting party after its formation, supported by new consideration.
Finn Fletcher signed a supply agreement as promoter for a planned entity. After Fisher Foods incorporated, it negotiated fresh terms with the supplier and paid an additional deposit as consideration. The new agreement bound Fisher Foods directly on the supply obligations.
Fatima Flores contracted with Fulton Shipping before incorporation. Once formed, Fulton Shipping offered the shipper a higher rate in exchange for extended delivery windows. The parties executed the revised deal, creating independent obligations for the corporation.
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Forrest Falconer secured a lease as promoter. After Frostline Textiles formed, it agreed to pay a security deposit the original lease omitted. The new payment created a separate contract that obligated the corporation without relying on the promoter's earlier promise.
Formation of a new contract requires fresh consideration between the corporation and the third party after incorporation. Adoption instead treats the promoter's original contract as binding on the corporation without new consideration.
The corporation typically provides new consideration such as an additional payment, modified terms, or a new promise. The third party supplies corresponding new value or forbearance.
No. Formation of a new contract creates only the corporation's own obligations. The corporation acquires no rights under the promoter's original agreement unless it obtains an assignment or qualifies as a third-party beneficiary.