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In: Accounting

Prior to incorporation, Claire entered into a contract with Phil to provide computers to a soon...

Prior to incorporation, Claire entered into a contract with Phil to provide computers to a soon to be incorporated company, Modern Family Services Pty Ltd. Upon incorporation the directors of the company refused to ratify the contract made by Claire as they can obtain the same services less expensively from another business. Phil has spent time, expertise and money preparing to perform the contract.

Advise all parties of the issues raised and the likely outcome.

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Answer

Claire has made contract with phil on behalf of the soon to be incorporated company which got incorporated as Modern Family Services Pvt. Ltd. . In this case Modern Family Services Pvt. Ltd. was not in existence when contract was entered by claire, who shall be considered as promoter. However,Company has not ratified the contract with phil who has spent time, expertise and money preparing to perform the contract for computers.

As per Companies law, Company MAY ratify the contract which has entered by Promoter prior to Incorporation within the given period, from this it can be concluded that it is at company's discretion whether to ratify the contract or not,Since comany was not in existance at the time contract entered.

Therefore in this case

  1. Claire (Being Promoter ) ,who has entered contract shall be liable to Phil for any Financial loss.
  2. Phil can sue only claire but not Modern Family Services Pvt Ltd for any loss.
  3. Modern Family Services Pvt Ltd shall not be liable as per Company law.    

ekkarill92 answered 1 year ago
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