Pre registration contracts Essay example -- essays research papers

The common law view of pre-registration contracts was that the company did not exist for legal purposes until it had been formally incorporated (registered). This common law view resulted in company’s being unable to enter a binding contract until they had been registered.   Ã‚  Ã‚  Ã‚  Ã‚  However â€Å"given the delays which can be encountered in the registration process, the promoter of a company may wish to enter into contracts `for’ the company prior to its incorporation† . An example of this may be a promoter wanting to ensure a company will have stock on hand so it will be ready to operate when its registered. He might order stock and sign the contract in the unregistered company’s name. Since a company did not exist before registration it could not sign a contract itself or appoint an agent to sign on its behalf. Therefore promoters could not be seen as the company’s agent. Circumstances such as this are problematic and raise difficult questions as to the enforceability of the contract and the availability of damages for its breech.   Ã‚  Ã‚  Ã‚  Ã‚  At common law, a company was also incapable of ratifying a pre-registration contract after it was registered. â€Å"This was because under the law of agency , ratification has a retrospective effect and the contract was regarded as being made at the time it was entered into by the agent when the company was not in existence† . A company could only be held liable for a pre-registration contract if it entered into a new contract with the same terms as the pre-registration contract after it was registered. This is called ‘novation’.   Ã‚  Ã‚  Ã‚  Ã‚  Seeing as though a company would not be held liable on a pre-registered contract, the courts recognised that innocent third parties could be prejudiced. Accordingly â€Å"the courts were prepared on occasions to infer an intension by the promoter to assume personal liability on the contract†   Ã‚  Ã‚  Ã‚  Ã‚  An important case is Kelner v Baxter (1866) where the promoters who had signed the contract on behalf of an unformed company were held to be personally liable. In this particular case the promoters of an unformed company agreed to purchase stock and signed an agreement, which stated ‘on behalf of the Gravesend Royal Hotel Alexandra Hotel Company Limited’. A difficultly had arisen as since the company had not yet been for... ...is case an accountant who was one of the companies four promoters entered into a contract on behalf of a unformed company. The company failed to ratify the contract and the supplier attempted to sue all four promoters. The Supreme Court of New South Wales found that only the account was liable since he was the only person who had signed the contract. The court also made it aware that the accountant has a separate right to claim against the other promoters if he acted as their agent in regards to the contract.   Ã‚  Ã‚  Ã‚  Ã‚  Ã¢â‚¬Å" While the promoter is primarily liable in these circumstances, the company does have a potential secondary liability. Hence â€Å"where the company is registered but does not ratify the pre-registration contract within the prescribed time, the court may ‘do anything it considers appropriate in the circumstances’. The courts powers include the option of ordering the company to rectify the unfairness† . The courts are able to this by ordering the company to pay for part or all of the damages for which the promoter is liable, transferring property received under the contract to a party to the contract or paying an amount to a party to the contract.