Business LAW

According to Guest (1979), when agent contracts for named principal or whose name is disclosed then it may be laid down as a general rule where the agent drops out of the transaction as soon as the contract is made and acquires neither rights nor liabilities under it. In addition, Craig (N/D) stated that the principal must be named or at least be capable of being identified for the ratification to be valid.

In the case of Schmaltz v Avery 1 , where the plaintiff entered into a contract of charter-party with the defendant, the plaintiffs described themselves as agents of the freighters and it was provided in the contract that, since they were contracting ‘on behalf of another party’ all personal liability on their part should cease when the cargo shipped (Guest, 1979).

Therefore I conclude that the company should be held liable as from the case study given, the contract signed have fulfilled the term above, where Andrew have disclosed the name of the company and the money was sent into the account of the company.

1 Schmaltz v Avery (1851), 16 Q.B. 655.

2. Can the company proceed the contract that are signed by

Brandon

In the case study, it is explained that Brandon has signed a pre-incorporation contract of 50 tons steel worth $40,000. Currently the steel supplier is anxious to accomplish the contract as the steel price has dropped substantially. The issue to be identified here is whether or not the contract signed is valid.

If we take a look on the company act 1985 (Britlaw, 2004), we will find that under Section 36(C), it is stated that:

“A contract which purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly. “

Furthermore, under the law of agency, a person cannot be an agent of a non-existent principle. Thus, a company cannot acquire rights or obligations under a pre- incorporation contract (Craig, N/D). In addition, according to Heriot Watt University (N/D), a company cannot be bound by the contract, ratified the contract after it comes to existence nor sue and be sued on the contract. Although there were ratifications made after the company being formed, however, the ratifications made are not valid with a reason that the principal name was not disclosed at the time contract being signed.

This principle was confirmed in Kelner v Baxter 2 , the promoters of a company entered into a contract on its behalf for the purchase of wine which the company, when incorporated, ratified. The wine was consumed but before payment was made, the company went into liquidation. The promoters, as agents, were successfully sued and held personally liable for payment since the company did not exist at the time the

2 Kelner v. Baxter (1866) LR 2 CP 174

contract was made. Willes J stated that a company could not become liable by a mere ratification as ratification can only be by a person ascertained at the time of act done- by a person in existence either actually or in contemplation of law in the case of assignees of bankrupts and administrator, whose title, for the protection of the state, vest by relation (Guest, 1979).

Therefore I conclude that, the steel company can complete the contract by sending the steel to Brandon instead of the company. Since there was no novation or a new obligation made to replace the old one (Answers Corporation, N/D), being made after the company being incorporated and the ratification held is not valid.