## Facts

- RKO-Stanley Warner Theatres, Inc. owned the Kent Theatre property in Philadelphia.
- RKO agreed to sell the property to Jack Jenofsky and Ralph R. Graziano for $70,000: $2,500 at signing, \$22,500 at deed delivery, and a \$45,000 purchase-money mortgage.
- Settlement was scheduled for September 30, 1970, and was twice continued at the purchasers’ request, ultimately to October 21, 1970.
- The purchasers failed to complete settlement on October 21, 1970.
- The agreement included a purchaser-drafted clause stating the purchasers intended to incorporate; if incorporation was completed by closing, the contract would be “construed” as between RKO and the resultant corporation and closing documents would reflect that.
- Articles of incorporation for Kent Enterprises, Inc. were filed on October 9, 1970.
- After the failed closing, RKO sued in equity for specific performance.
- Jenofsky denied personal liability, asserting the incorporation clause and formation of the corporation shifted liability away from him; Graziano did not join the appeal.

## Issues

1. Whether an agreement clause referencing an intent to incorporate and to treat the contract as with the corporation, plus incorporation before closing, relieved a promoter/purchaser of personal liability on a pre-incorporation contract absent an express novation.
2. Whether the equitable decree compelling specific performance against the individual purchaser was proper where no release of personal liability was shown.

## Decision

- The Supreme Court of Pennsylvania affirmed the final decree ordering specific performance.
- Jenofsky remained personally liable as a purchaser-obligor under the agreement of sale.
- The incorporation clause did not, by itself, constitute a release of the individual purchasers or a substitution of obligors.
- Any ambiguity in the purchaser-drafted clause was construed against Jenofsky.
- No novation was proven because the record did not show a clear, mutual intent that the corporation would replace the individuals as the sole obligor.

## Legal Principles

- A promoter who contracts on behalf of a proposed corporation is generally personally liable on the contract unless the other party agrees to look solely to the corporation.
- A corporation’s formation and later adoption/assumption of a pre-incorporation contract may add corporate liability, but does not discharge the promoter absent an express release or novation.
- Novation requires a clear and definite mutual intent to substitute a new obligor and release the original obligor.
- Ambiguous contract language is construed against the party who drafted the provision, especially where the provision is relied on to claim a release of liability.
- Specific performance is an available equitable remedy for breach of a real estate sale contract when the obligor remains bound and the relief is otherwise appropriate.

## Conclusion

The court enforced the real estate sale contract by specific performance against the individual purchaser, holding that incorporation of the intended corporation and an intent-to-incorporate clause did not establish a novation or otherwise release the promoter from personal liability.


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