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pre_incorporation_contracts

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Pre-incorporation Contracts
A pre-incorporated contract is an agreement which is entered into, usually by a
promoter or promoters, on behalf of a company at a time when the company's
formation has not been completed by its registration. A few cases have been
contested in English courts regarding the effect of such agreements. The
following rules were enunciated by the judges in the course of deciding the said
cases:
(a) If the agreement is a written one and it is apparent from the words used
therein that the promoters were contracting as individuals, they will be
held personally liable under the contract. This will be so because no oral
testimony will be admissible in evidence to rebut the contents of the
written document: Kelner v Baxter (23).
In other words, they will not be allowed to say that they were contracting
for the company. Regarding the case of Kelner v Baxter it should be noted
that, according to the written document that the parties signed, the offer
was made to, and was accepted by, the promoters personally. They were
therefore made personally liable on the contract. This was clarified by Lord
Goddard in the later case of Newborne v Sensolid Ltd (24) when he said
that, in Kelner v Baxter, "the contract showed that it (i.e. the wine) was
agreed to be sold to certain men who were the proposed directors of a
company which was coming into existence. They agreed to buy".
(b) If the agreement is a written one and it shows that the proposed company
was the contracting party the promoters will not be allowed to enforce it in
the event of its breach by the other party. This was explained in Newborne
v Sensolid (Great Britain) Ltd (25) in which the judge, after observing the
way in which the agreement was signed, stated:
"It is a case in which the company is contracting and the company's
contract is authenticated by the signature of one of the directors. The only
person who had any contract here was the company and Mr Newborne's
signature merely confirmed the company's signature".
Mr Newborne, the promoter, could not be allowed to come forward and
say, "Well, it is my contract". He could not therefore sue for its breach.
As the company was not in existence when the contract was signed, the
legal position is that there never was a contract and the signed document
was legally a nullity.
(c) A pre-incorporation contract cannot be ratified by the company after its
registration. This is demonstrated by the facts of, and the decision in, Natal

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Pre-incorporation Contracts A pre-incorporated contract is an agreement which is entered into, usually by a promoter or promoters, on behalf of a company at a time when the company's formation has not been completed by its registration. A few cases have been contested in English courts regarding the effect of such agreements. The following rules were enunciated by the judges in the course of deciding the said cases: (a) If the agreement is a written one and it is apparent from the words used therein that the promoters were contracting as individuals, they will be held personally liable un ...
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Anonymous
Awesome! Perfect study aid.

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