The syndicate was registered and discovered a seam of coal The company refused

The syndicate was registered and discovered a seam of

This preview shows page 67 - 70 out of 196 pages.

agent of the P Syndicate. The syndicate was registered and discovered a seam of coal. The company refused to grant the lease. It was held that there was no binding contract between the company and the syndicate. 3. Promoter personally liable. The promoters remain personally liable on a contract made on behalf of a company not yet in existence.Such a contract is deemed to have been entered into personally by the promoters and they are liable to pay damage s for failure to perform the promises made in the company‟s name even though the contract expressly provides that only company‟s shall be answerable for performance. 4.9 Ratification of a Pre-Incorporation Contract A company cannot ratify a contract entered into by the promoters on its behalf before its incorporation. Therefore, it cannot by adoption or ratification obtain the benefit of the contract purported to have been made on its behalf before it came into existence as ratification by the company when formed is legally impossible. The doctrine of ratification only applies if an agent contracts for a principal who is in contract at the time of the contract by the agent.
68 Where a contract is made on behalf of a company known to both the parties to be non existent, the contract is deemed to have been entered into personally by the promoters. The company can, if it desires, enter into a new contract, after its incorporation with the other party. The contract may be on the pre incorporation contract made by the promoters. But the adoption of the pre incorporation contract made by the company will not create a contract between the company and the other parties even though the adoption of the contract is made as one of the objects of the company in its Memorandum or Articles. In such a case, it is safer for the promoters acting on behalf of the company about to be formed to provide in the contract that: 1. If the company makes a fresh contract in terms of the pre-incorporation contract, the liability of the promoters shall come to an end, and 2. If the company does not make a fresh contract within a limited time, either of other parties may rescind the contract. Summary for the topic Meaning of promoters The functions of promoters. Legal status of a promoter Fiduciary position of a promoter Duty of promoter as regards prospectus Remuneration of promoters Pre incorporation or preliminary contracts Position of promoters as regards pre incorporation contracts Ratification of a pre-incorporation contract
69 Revision Questions a) Define of promoters b) Describe the functions of promoters. c) Describe legal status of a promoter d) Describe fiduciary position of a promoter e) Describe duty of promoter as regards prospectus f) Explain remuneration of promoters g) Describe pre incorporation or preliminary contracts h) Explain position of promoters as regards pre incorporation contracts i) Explain ratification of a pre-incorporation contract Text Books For Further Reading Ogolla J.J, Gitau. R (2010)

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