## Facts

- Theater promoters J. L. Adams, Mrs. J. W. Adams, and W. D. Jamieson planned to form a new theater corporation and engaged attorney J. W. Kridelbaugh to perform legal services related to formation and financing.
- The promoters requested that Kridelbaugh investigate where to incorporate and prepare the incorporation plan and related legal work.
- Kridelbaugh performed the requested services and incurred related expenses; the promoters promised to pay him $1,500 for the work.
- Aldrehn Theatres Co. was incorporated in Delaware on March 10, 1920, with its principal place of business in Des Moines, Iowa.
- After incorporation, the promoters became the corporation’s only directors.
- At the first directors’ meeting, Kridelbaugh’s prior legal services were discussed, and he was directed to obtain an Iowa permit to sell the corporation’s stock, with statements indicating payment would be made after stock sales.
- The corporation did not pay, and Kridelbaugh sued Aldrehn Theatres Co. to recover attorneys’ fees and expenses; the trial court (bench trial) entered judgment for Kridelbaugh for $1,032.30 plus interest.

## Issues

1. Whether a corporation is liable for a contract for legal services made by its promoters before incorporation, when the promoters promised payment and the corporation later accepted the benefits of the services.
2. Whether the corporation’s post-incorporation conduct—through its board’s acknowledgment of the services and direction to take steps tied to payment—constituted adoption or ratification of the promoters’ pre-incorporation contract.

## Decision

- The Iowa Supreme Court affirmed the judgment for Kridelbaugh.
- The court held the promoters could not bind a non-existent corporation at the time of contracting and were initially personally liable.
- The court nonetheless found sufficient post-incorporation corporate conduct to treat the corporation as having adopted the obligation and thus becoming liable for the reasonable value of the services and expenses.

## Legal Principles

- Promoters are personally liable on their pre-incorporation contracts because there is no principal capable of authorization or agency before the corporation exists.
- A corporation may become liable for a promoter’s pre-incorporation contract if, after formation, it adopts the contract by conduct.
- Adoption may be shown by the corporation’s knowing acceptance and retention of the benefits of the services and affirmative board action recognizing the obligation and proceeding in a manner consistent with paying it.
- When the same persons who acted as promoters become directors, their post-incorporation acts taken in their corporate capacity may evidence corporate adoption.

## Conclusion

A corporation is not automatically bound by promoters’ pre-incorporation contracts, but it can assume liability by post-incorporation adoption; here, the directors’ recognition of the legal work that created the corporation and corporate steps taken toward payment supported holding the corporation liable for the attorney’s services and expenses.


Kridelbaugh v. Aldrehn Theatres Co., 195 Iowa 147, 191 N.W. 803 (Iowa 1923)