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PP Lecture 5 2013

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TOPIC 5 : Pre Incorporation Contracts • A ‘pre-incorporation contract’ is a written agreement entered into before incorporation of a company by a person who purports to act in the name of, or on behalf of, the proposed company, with the intention or understanding that the proposed company will be incorporated, and will thereafter be bound by the agreement (definition in section1) • Reasons why it is necessary to enter into a pre incorporation contract Three important parties: – The company that is not yet in existence; – The ‘promoter’ who acts for the company that will come into existence – The other contracting party who is contracting in the hope the company will come into existence The Common law position: • Based on agency principles • Problem in the common law of agency: a person can not act for a principal that is not yet in existence (Kelner v Baxter) • There are different ways that the common law enabled the promoter to secure a contract on behalf of a company to be formed Stipulatio alteri ( contract for the benefit of a third party): • The Stipulans ( promoter) acts as principal • It is agreed between the stipulans and the promissor ( other contracting party) that the latter will make performance to the third party (company) • The third party (company once it is incorporated) brings a contractual relationship into existence by notifying the promissor that it accepts the benefit Stipulatio alteri ( There are two contracts ? ...
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