PRE-INCORPORATION OR PRELIMINARY CONTRACT COMPANY LAW 2013

• PRE-INCORPORATION OR PRELIMINARY CONTRACT
  COMPANY LAW 2013
  PRE-INCORPORATION OR PRELIMINARY CONTRACT

1. CONTRACTS ARE THOSE CONTRACTS WHICH ARE ENTERED INTO BY AGENTS OR TRUSTEES ON BEHALF  OF A PROSPECTIVE COMPANY BEFORE IT COMES INTO EXISTENCE
2. THE PROMOTERS OF A COMPANY USUALLY ENTER CONTRACTS TO ACQUIRE SOME PROPERTY OR RIGHT FOR THE COMPANY WHICH IS YET TO BE INCORPORATED

• LEGAL POSITION OF PRE-INCORPORATION

1. COMPANY NOT BOUND BY PRE-INCORPORATION CONTRACT:
2. CONTRACTS ARE MADE BEFORE IT IS DULY INCORPORATED
3. THE PROMOTERS CANNOT ACT AS AGENTS FOR A COMPANY WHICH HAS NOT YET COME INTO EXISTENCE
4. COMPANY IS NOT LIABLE FOR THE ACTS OF PROMOTERS DONE BEFORE ITS EXISTENCE

·         ENGLISH & COLONIAL PRODUCE CO LTD,”A SOLICITOR PREPARED THE MOA AND AOA OF A COMPANY AND PAID THE NECESSARY REGISTRATION FEES AND OTHER INCIDENTAL EXPENSES TO OBTAIN THE REGISTRATION OF THE COMPANY. HE DID THIS ON THE INSTRUCTION OF CERTAIN PERSONS WHO LATER BECAME DIRECTORS OF THE COMPANY.

·         BUT THE COMPANY WAS NOT HELD NOT BOUND TO PAY  FOR THOSE SERVICES AND EXPENSES.

·         COMPANY COULD NOT BE SUED AS IT WAS NOT IN EXISTENCE AT THE TIME WHEN THE EXPENSES WERE PAID. RATIFICATION WAS  IMPOSSIBLE

• COMPANY CAN NOT ENFORCE PRE INCORPORATION
• THE COMPANY CAN NOT RATIFY  A PRE INCORPORATED CONTRACT AND HOLD THE OTHER PARTY LIABLE.

·         IN NATAL LAND & COLONISATION CO LTD V PAULINE COLLIERY & DEVELOPMENT SYNDICATE LTD

·         NATAL LAND & COLONISATION CO LTD AGREED WITH AGENT OF THE PAULINE COLLIERY & DEVELOPMENT SYNDICATE LTD BEFORE ITS FORMATION TO GRANT A MINING LEASE TO THE SYNDICATE. THE SYNDICATE WAS REGISTERED AND DISCOVERED A SEAM OF COAL. THE COMPANY REFUSED TO GRANT THE LEASE. AN ACTION BY THE SYNDICATE FOR SPECIFIC PERFORMANCE OF THE AGREEMENT OR IN THE ALTERNATIVE FOR DAMAGES WAS HELD NOT MAINTAINABLE AS THE SYNDICATE WAS NOT IN EXISTENCE. AN ACTION BY THE SYNDICATE FOR SPECIFIC PERFORMANCE OF THE  AGREEMENT OR IN THE ALTERNATIVES FOR DAMAGES WAS HELD NOT MAINTAINABLE AS THE SYNDICATE WAS NOT IN EXISTENCE WHEN THE CONTRACT WAS SIGNED.

• PROMOTERS PERSONALLY LIABLE :
• THE AGENT WHO CONTRACT FOR A PROPOSED COMPANY MAY SOMETIMES INCUR PERSONAL LIABILITY

·         KELNER V BAXTER : THE PROMOTERS OF A PROJECTED HOTEL COMPANY PURCHASED WINE FROM THE PLAINTIFF ON BEHALF OF THE COMPANY. THE COMPANY CAME INTO BEING BUT BEFORE THE PAYING THE PRICE WENT INTO LIQUIDATION. THEY WERE HELD PERSONALLY LIABLE TO THE PLAINTIFF.

·         BUT THE AGENT HIMSELF MAY NOT BE ABLE TO ENFORCE THE CONTRACT AGAINST THE OTHER PARTY.

·         IN NEWSBORNE V SENSOLID LTD

·         A CONTRACT TO SELL SHOES MADE IN THE NAME OF THE PROJECTED COMPANY WAS NOT ALLOWED TO BE ENFORCED BY THE PERSON SIGNING AGAINST THE OTHER PARTY.

• BRIEF SUMMARY OF THE RULES

1. THE VENDOR CANNOT SUE OR BE SUED BY THE COMPANY THEREOF AFTER ITS INCORPORATION
2. PERSON WHO ACTS FOR THE INTENDED COMPANY REMAINS PERSONALLY LIABLE TO THE VENDOR EVEN IF THE COMPANY PURPORTS TO RATIFY THE AGREEMENTS UNLESS THE AGREEMENT PROVIDES :-
3. HIS LIABILITY SHALL CEASE IF THE COMPANY ADOPTS THE AGREEMENT
4. EITHER PARTY MAY RESCIND THE AGREEMENT,IF THE COMPANY DOES NOT ADOPT  IT WITH IN SPECIFIED TIME
5. AFTER INCORPORATION,THE COMPANY MAY ADOPT THE PRELIMINARY AGREEMENTS BUT THIS MAY BE NOVATION WHICH MAY BE IMPLIED FROM THE CIRCUMSTANCES. IN SOME CASES THE MOA DIRECT THE DIRECTORS TO EXECUTE
6. A PREINCORPORATION CONTRACT CAN BE ENFORCED AGAINST THE COMPANY IF IT IS WARRANTED BY THE TERMS OF THE INCORPORATION AND IT IS ADOPTED BY THE COMPANY IN SUCH A CASE,THE DIRECTORS HAVE NO DISCRETION IN THIS MATTER

• RATIFICATION OF A PRE INCORPORATION CONTRACT

1. A COMPANY CAN NOT RATIFY A CONTRACT ENTERED INTO BY THE PROMOTERS ON ITS BEHALF BEFORE ITS INCORPORATION
2. THE DOCTRINE OF RATIFICATION APPLIES ONLY IF AN AGENT CONTRACTS FOR A PRINCIPAL WHO IS IN EXISTENCE AND WHO IS COMPETENT TO CONTRACT AT THE TIME OF THE CONTRACT BY THE AGENT.
3. WHERE A CONTRACT IS MADE ON BEHALF OF A COMPANY KNOWN TO BOTH THE PARTIES TO THE NON EXISTENT,THE CONTRACT IS DEEMED TO HAVE BEEN ENTERED INTO PERSONALLY BY THE PROMOTERS
4. THE COMPANY CAN IF IT DESIRES ENTER INTO  A NEW CONTRACT AFTER ITS INCORPORATION WITH THE OTHER PARTY
5. THE CONTRACT MAY BE ON THE SAME BASIS AND TERMS AS GIVEN IN THE PRE INCORPORATION CONTRACT MADE  BY THE PROMOTER

• SPECIFIC PERFORMANCE OF PRE-INCORPORATION
• SECTION 15 (h) and 19 (e) OF THE SPECIFIC RELIEF ACT,1963 PROVIDED THAT:
• THE CONTRACT SHOULD HAVE BEEN ENTERED INTO B THE PROMOTER FOR THE PURPOSE OF THE COMPANY
• THE TERMS OF THE INCORPORATION SHOULD WARRANT SUCH CONTRACT
• THE COMPANY SHOULD ACCEPT THE CONTRACT AFTER INCORPORATION
• SUCH ACCEPTANCE SHOULD BE COMMUNICATED TO THE OTHER PARTY TO THE CONTRACT

·         IF THE ABOVE CONDITIONS ARE FULFILLED,THEN SPECIFIC PERFORMANCE OF THE CONTRACT MAY BE ENFORCED BY THE  COMPANY OR AGAINST THE COMPANY.