Business Associations

Jacobson v. Stern

Supreme Court of Nevada, 1980

Facts:

Jacobson contacted Stern and had him design a new hotel. Jacobson referred to it as "my hotel" and agreed to pay Stern $250,000. He later acquired all of A.L.W., although he sold 30% of it soon after. Jacobson then formed Lake Enterprises, a corporation with Jacobson as the sole stockholder and president; and King's Castle, a limited partnership with Lake Enterprises as the sole general partner and Jacobson and others as limited partners.

A.L.W. then operated the hotel and casino and King's Castle leased the land. These two entities then handled the money. Stern billed Jacobson, but A.L.W. paid the bills.

A couple years later, A.L.W. filed for bankruptcy. Stern did not file a claim, but he later sued Jacobson for the outstanding balance.

Procedural History:

Stern was awarded $132,590.37, plus interest.

Issue:

Is Jacobson still personally liable for the debt to Stern?

Rules:

  • LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 304

    A contract with the promoter is not one with the corporation absent some subsequent corporate act or agreement. . . . [I]f a pre-incorporation contract made by a promoter is within the corporate powers, the corporation may, when organized, expressly or impliedly ratify the contract and, thus, make it a valid obligation of the corporation.

  • LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 304, Bottom

    In order to constitute a valid novation, however, the creditor must assent to the substitution of a new obligor, but this assent may be inferred from his acceptance of part performance by the new obligor, if the performance is made with the understanding that a complete novation is proposed.

Reasoning:

There is no evidence that Stern contracted with Jacobson in any capacity connected with corporations that existed at the time. Thus, the contract was made with Jacobson as a promoter and not the corporation. There is evidence that A.L.W. adopted the contractual obligations and made payments thereon, thereby becoming liable; but this does not end Jacobson's liability absent a novation. There is no evidence, however, that Stern agreed to the substitution of A.L.W. for Jacobson or that he performed knowing that a novation was proposed. He maintained that Jacobson was personally liable. As he did not clearly intend a novation, Stern never agreed to release Jacobson from his obligations.

Holding:

yes, Jacobson is still personally liable for the debt. Affirmed.


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