Pre-Incorporation or Preliminary Contracts

Position of promoters

1.       Company not bound by pre-incorporation contract

English & Colonial Produce Co. Ltd., Re (1906)

A solicitor prepared the Memorandum and Articles of Association 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 the directors of the company.

Held, the company was not liable to pay the solicitor’s costs, although it had taken the benefit of his work.

 
2.       Company cannot enforce pre-incorporation contract

Natal Land & Colonisation Co. Ltd. V. Pauline Colliery & Development Syndicate Ltd., (1904)

The Natal Land & Colonisation company agreed with an 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.

Held, there was no binding contract between the company and the Syndicate.

 
3.       Promoters personally liable

Kelner V. Baxter (1866)

A hotel company was about to be formed and persons responsible for the new company signed an agreement on 27^th January, 1866, for the purchase of stock on behalf of the proposed company, payment to be made on 28^th January, 1866. The company was incorporated on 20^th February, 1866. The goods were consumed in the business and the company went into liquidation before the debt was paid. The persons signing the agreement were sued on the contract.

Held, the persons signing were promoters and personally liable on their signatures.