Pre-incorporation contracts, Business Law and Ethics

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".

Posted Date: 1/12/2013 2:16:29 AM | Location : United States







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