Opinion ID: 1692813
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Heading Rank: 1

Heading: Is Mid-South bound by the letter?

Text: The principal argument of Mid-South is that the letter dated July 8, 1968, written by Walker, purportedly on behalf of Mid-South and as president thereof, is not binding because Mid-South did not come into existence until July 22, 1968, the date of the charter. It is contended by Mid-South that the letter could not have been the act or the creation of Mid-South which was not then a corporate entity and that there was no ratification or adoption of the contract by affirmative action of the company after its incorporation. The general rule is that a contract made by promoters with a view towards incorporation will be binding upon the corporation if it accepts benefits of the contract with the full knowledge of the terms of the contract. Morgan v. Bon Bon Co., Inc., 222 N.Y. 22, 118 N.E. 205 (1917); Annot., 17 A.L.R. 452 (1922); 18 Am.Jur.2d, Corporations § 119 (1965). There are several theories upon which corporations have been held liable, including the theory of adoption and the theory of ratification. In Pearl Realty Co. v. Wells, 164 Miss. 300, 145 So. 102 (1933), the Court spoke in terms of ratification and upheld a contract for services rendered in obtaining a cancellation of a lease to a lot upon which Pearl Realty Company subsequently erected a building. Pearl Realty Company was incorporated after the negotiations between the promoter of the corporation and Wells. In concluding that the corporation had ratified the contract made by the promoters, the Court said: It is permissible for promoters to make contracts which, if ratified by corporations after they are organized, will bind the corporations. 7 R.C.L. pp. 81, 82, §§ 60, 61, Mulverhill v. Vicksburg Ry., Power & Mfg. Co., 88 Miss. 689, 40 So. 647, and Metzger v. Southern Bank, 98 Miss. 108, 54 So. 241. 164 Miss. at 311, 145 So. at 103. An analysis of Pearl Realty Company indicates that the term ratification in that opinion does not refer to any formal act of the corporation, but rather that the corporation adopted the contract and received the benefits of it with full knowledge on the part of all parties concerned in the corporation's organization of the manner and conditions under which it had been obtained. The Court held that under such circumstances the contract was binding on the corporation. The general rule is that adoption may be implied from the acts or acquiescence of a corporation without express acceptance or ratification, and the adopting corporation will be liable if its responsible officers have or are chargeable with knowledge of the facts upon which it acts. Annot., 17 A.L.R. 452 (1922). Stillpass and Walker, the only executive officers of Mid-South, initiated and concluded the agreement that was reduced to writing in the letter to Fortune. Stillpass admitted that Mid-South would not have been organized without Fortune's account. The jury was fully justified in finding that these two officers had full knowledge of the terms of the contract and took advantage of it to sell more than $1,000,000 in goods to Fortune as a result of the contract. We are of the opinion that the jury was justified under the evidence in finding that Mid-South was bound by the terms of the letter of July 8, 1968.