1. Explain who Hansen is suing and why.

2. The court refers to this case as one of first impression in South Carolina. It subsequently refers to the “prevailing rule.” How can the case be one of first impression if there is a prevailing rule on the issue of liability?

Clifford Hansen was an entrepreneur who sought to purchase Hickory Springs Water Company, Inc. in South Carolina. He approached Robert Fields to help him locate investors and secure financing. Fields worked with a company called Advisory Group. Advisory Group signed a contract agreeing to assist Hansen but ultimately terminated its representation of Hansen. Advisory Group formed a new corporation, Beechwood Development Group, which sought to purchase the Water Company itself. Fields also formed Fields Company, LLC to work with the Advisory and Development Groups towards the acquisition of Water Company. Hansen eventually realized that Fields was working to acquire the Water Company and to cut him out of the deal.

Hansen sued Fields Company, LLC, Advisory Group, Development Group,, and others for breach of fiduciary duty, breach of contract, and several torts. A jury found for Hansen and awarded damages over one million dollars. Fields LLC and the other entities appealed.

JUDICIAL OPINION

HEARN, J.… The first step in resolving this case is determining if and when a limited liability company can be held liable for its promoter’s pre-incorporation contracts or torts, issues of first impression in South Carolina. Turning first to a corporate entity’s liability for preformation contracts, we adopt the prevailing rule that “[b]ecause a corporation cannot have agents, contract for itself, or be contracted with prior to its incorporation, it is not liable on any contracts that a promoter makes for its benefit prior to incorporation unless it assumes the obligation by its own act after incorporation.…”

18 Am.Jur.2d Corporations § 123 (2014); see also Duray Dev., LLC v. Perrin, 792 N.W.2d 749, 755 (2010) (applying the rule to a limited liability company); JCL Props., LLC v. Equity Land Developers, LLC, 102 A.D.3d 745 (N.Y. App. Div. 2013) (applying the rule to a limited liability company). While initially not liable for a promoter’s contracts, a corporation may become liable for a promoter’s preformation contract either through expressly ratifying the contract or through implicitly ratifying it by accepting its benefits with full knowledge of its terms.

Here, the directed verdict should have been granted as to Hansen’s contract claims because he failed to present any evidence from which a jury could find that Appellant ratified any contract with Hansen. There was no evidence that Appellant expressly ratified any preformation contract. There also was no evidence to show that Appellant benefited from or accepted any benefits of Fields’ or his related entities’ contracts with Hansen. The contracts Hansen entered into with Advisory Group and Development Group dealt with those entities finding capital for him in order to enable him to purchase Water Company. Appellant wanted to purchase Water Company and was a competitor in that respect. ………..