16 BULLETIN 110 6, U. S. DEPARTMENT OF AGRICULTURE 
LIABILITY OF ASSOCIATION 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, 77 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 wa? 
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 the 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 78 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 ; and a 
mere silence of the board of directors, or failure to object when the claim is 
mentioned, is not such an assumption or adoption as will bind the corporation. 
It is true that, as a rule, a corporation usually pays the necessary 
legitimate expenses and costs incurred by those who brought about its 
formation, but the corporation is not liable for such charges unless it 
elects to pay them. 79 
LIMITATION ON INDEBTEDNESS 
The common law places no limit upon the amount which a corpora- 
tion may borrow. The amount borrowed may be greater than the 
capita^ stock. 80 The general rule is that a debt contracted by a 
corporation in excess of the limit fixed by statute or by the charter is 
valid and enforceable against the corporation. A national bank pur- 
chased furniture and executed three promissory notes in payment 
thereof at a time when the amount of its indebtedness exceeded that 
allowed by a Federal statute. In a suit brought on the notes it was 
held that the notes were enforceable against the bank. In this case, 
it was said, "We hold, therefore, that an indebtedness which a 
national bank incurs in the exercise of any of its authorized powers, 
and for which it has received and retains the consideration, is not 
void from the fact that the amount of the debt surpasses the limit 
. prescribed by the statute, or is even incurred in violation of the 
positive prohibition of the law in that regard." 81 In an Iowa case 82 
77 Davis v. Joerke, 47 N. D. 39, 181 N. W. 68. 
78 Kirkup v. Anaconda Amusement Co.. 59 Mont. 469. 197 P. 1005 ; Cushion Heel Shoe 
Co. v. Hartt, 181 Ind. 167, 103 N. E. 1063. 50 L. R. A. (N. 3.) 979. 
79 Kridelbaugh v. Aldrehn Theatres Co., 195 Iowa 147, 191 N. W. 803. 
80 Cook on Corporations, 8th Ed., sec. 760. 
81 Weber v. Spokane Nat. Bank, 64 F. 208 ; see also H. Scherer & Co. v. Everest, 168 P. 
822 ; Grand Valley Water Users' Association v. Zumbrunn. 272 F. 943. 
82 Junkin v. Plain Dealer Pub. Co., 181 Iowa 1203, 165 N. W. 339. 
