Before Lumen Ltd is incorporated, its promoter Saul orders printing from Inkwell Ltd 'for and on behalf of Lumen Ltd'. The written order states, at Saul's insistence and with Inkwell's agreement, that Saul accepts no personal liability. After incorporation, Lumen Ltd's board passes a resolution to 'ratify' the order, but no new contract is made with Inkwell, and Lumen Ltd later refuses to pay. Who is liable to Inkwell Ltd on the contract?

Correct answer: A) Neither Saul nor Lumen Ltd, because s51 makes the promoter liable only subject to any agreement to the contrary, and the company cannot ratify a pre-incorporation contract

Explanation

Under s51 Companies Act 2006, a contract that purports to be made by or for a company before it is formed has effect as a contract with the person acting for it, who is personally liable, but this is 'subject to any agreement to the contrary'. Inkwell expressly agreed that Saul would not be liable, so he is not. A company cannot ratify a contract made before it existed (Kelner v Baxter), so the board's resolution has no effect. Lumen Ltd would be bound only if it entered into a new contract (novation) with Inkwell, which it did not.