ACCA LW · Chapter 7 · Question 2 of 10
Promoters entered into a contract on behalf of a company that had not yet been incorporated. After incorporation the company tried to ratify the contract. Following Kelner v Baxter, why could the company not ratify?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) The principal must have been in existence when the agent made the contract
Explanation
One condition for ratification is that the principal existed and had capacity at the time the agent acted. A company not yet incorporated cannot satisfy this, so in Kelner v Baxter the promoters were personally liable. This rule is now reflected in s51 Companies Act 2006, under which the person acting for an unformed company is personally liable unless otherwise agreed.
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