Common Law Discuss That the Pre-Registration Contract

Basically the common law discuss that the pre-registration contract is when a person makes a contract on behalf of the company yet to be registered. In the prospect that later will be registered [1] . On the other hand the statue law discus the issue on when the company is registered or if it is not registered and how does that affect the third party. The question of whether the common law rules were less accurate and unfair to the company and the formation of s131-133 of the corporate Act would have changed the legislation.

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Under the common law pre-registration contract was that the company was not created for legal purposes until it had officially been registered. This common law analyses resulted in company’s being incapable to enter a compulsory contract until they had been registered [2] .On the other hand the agent or promoter may intend to inter into an agreement for the company prior to its incorporation [3] . If the company is not registered yet, then it can not signed the contract or choose an agent to sign it on its behalf [4] .

However under common law the company is not capable to ratify the pre-corporation contract after is formally been registered [5] . And this is because the law of agency views that “ratification has retrospective effect and the contract was regarded as being made at the time it was entered into by the agent when the company was not in existence. [6] “. A company could be held legally responsible for pre-registration contract when it had entered into a new agreement with the same term after it was registered. [7] . Bearing in mind a company would not be held legally responsible on pre-registration contract, if the court identify that innocent third party could be biased [8] .

A significant case is Kelner v Baxter (1866) LR 2 CP 174, in this case the advocate who agreed to sign the contract on behalf of an unregistered company where held liable. Since the company has not yet been created the advocate who approved the contract was not seen as the company’s agent. Consequently the court found that the advocate was personally liable. However in this case demonstrate that the advocate was informed of the contract that the company did not exist [9] .

To over come the complications related to the common law situation with respect to pre-registration contract that to establish more justice and certainty [10] . In S131 to 133 of corporation Act 2001 deals with contract before its registration [11] . The main impacts of s131 of the act were that it “enables the outsider to enforce a pre-registration contract against the company if it ratifies the contract after it is registered” but “if the company does not ratifies or registered the contracts the person who entered the contract on its behalf becomes personally liable to pay damages to the other contracting party” as well as the act does not apply to “a company was registered at the time the a contract was made and later changed its name” [12] . Commonwealth Bank of Australia v Australian Solar information Pty. Ltd. (1987) 5 ACLC 124, under this case the promoter of (Towrang Pty. Ltd) company attempted to change the company name to Australian Solar information Pty. Ltd. While the trade-in company was in exist before the contract. Clearly there are no major differences between S131of the new act and s81 of former act, both acts has the same roles [13] .

Under s131 (1) ratification after registration which state: “if a person entered into a contract on behalf of the company before its registration the company becomes bounded” [14] . These means when a person had signed the agreement must follow its contractual duty. If that person had failed to meet those requirements of s131 (1) then under s131 (4) the advocate will be liable to pay all the damage that is required to the other party. Also the court has the power to enforce the second liability to the advocate [15] .

Sections 131 and 132 have impacted heavily on right and obligation of the advocate. Were s132 (1) says that the person is not tolerate a liability for the damages if other party had signed a discharge agreement to that effect [16] . Further more under s131 (2) stated that the promoter may be liable to pay the damages that the company was liable during the ratification contract but had fail to perform all or part of the contract duties [17] .

S131 (2) testify that “inflict a liability for damages only on the person who entered into a contract or acted on behalf of the company” [18] . For example Bay v Illawarra Stationary Supplies Pty. Ltd (1986) case had four advocates one of them had entered into a contract on behalf of the company, the company was not formed at that time so the company had failed to ratify the contract, and then the Illawarra suppliers try to sue all four advocates. The court found only one of the account was liable to pay the damages because he was the only who had sign the contract [19] .

In conclusion

The promoter of the company is mainly liable in these conditions. The company does have a secondary liability. As well as the court had the power to order the company to pay the damages that had occurred.