18 BULLETIISJ' 1106, U. S. DEPARTMENT OF AGRICULTURE. 



lation of the positive prohibition of the law in that regard." ^^ In an 

 Iowa case " it was said, " A corporation debt contracted in excess of 

 the maximum limitation in its articles of incorporation is not void 

 because of such excess." In the case of a corporation there are no 

 public records by which one about to extend credit to it can ascertain 

 the amount of indebtedness already incurred at the time credit is 

 extended, and this furnishes a sufficient reason for holding a corpora- 

 tion liable in cases like those just discussed. 



As pointed out elsewhere, officers and directors are liable to the 

 corporation for all damages suffered by it where they exceed the 

 limit of indebtedness fixed by the statute, charter, or by-laws. And 

 directors and officers are made personally liable by statute in some 

 States to third persons for debts in excess of the statutory amount. 



LIABILITY OF CORPORATION FOR PROMOTION EXPENSES. 



What is the liability of a corporation on contracts made or obliga- 

 tions incurred by its promoters or those who are active in forming 

 and organizing it? The answer is that as a general rule it is not 

 liable unless it recognizes and ratifies the contracts or obligations 

 after its formation. This question arises in connection with the 

 work done or contracts made incident to the promotion of a corpora- 

 tion and prior thereto by those who are active in bringing about 

 the existence of the corporation. 



In a North Dakota case,^^ in which the claim involved arose out 

 of work done by a stock subscription solicitor in obtaining sub- 

 scribers to the capital stock of a corporation to be organized, it 

 was said: 



It is elementary that a corporation is not liable upon contracts entered into 

 by its promoters. Before the corporation comes into existence, it can have 

 no representative and no one is capable of acting for it. Those interested 

 in promoting it may nevertheless contemplate the ultimate payment by cor- 

 poration of the legitimate promotion expenses. But the corporation does 

 not become liable for such expenses in the absence of a subsequent undertaking 

 in some form. 



In a Montana case^^ appears the following: 



In the absence of a statute, a corporation will be held liable for services 

 rendered by its promoters before incorporation, only when by express action 

 taken after it becomes a legal entity it recognizes or affirms such claim, a 

 failure to object when the claim is mentioned is not such an assumption or 

 adoption as will bind the corporation. 



M Weber v. Spokane Nat. Bank, 64 Fed. 208 ; see also H. Scherer & Co. v. Everest, 

 168 Fed. 822 ; Grand Valley Water Users' Association v. Zunbrunn, 272 Fed. 943. 



^^ Juskin V. Plain Dealer Pub. Co., (Iowa) 165 N. W. 339. 



68 Davis V. Joerke, (N. Dak.) 181 N. W. 68. 



BSRirkup V. Anaconda Amusement Co., (Mont.) 197 Pac. 1005; see also Cushion 

 Heel Co. v. Hartt, 181 Ind. 167, 103 N. E. 1013, 50 L. R. A. (N. S.) 979. 



