Preliminary or Pre-incorporation Contracts: When the contract is agreed, on behalf of the company before its incorporation they are called the preliminary Contract or pre-incorporation Contract. These contract may relate either to the property, which the promoter wants to purchase for the Company or the technical knowledge which is essential for the success of the company. These types of contracts cannot bind the company until it is incorporated.
The legal position in case of preliminary contracts can be studied under two heads:-
- Position before passing of Specific Relief Act, 1963
- Position after passing of Specific Relief Act, 1963
- Position before 1963:
(i) The preliminary Contract made before passing of Specific Relief Act, 1963 cannot bind the company because it has not legal existence before incorporation.
(ii) The companies are not in a position to sue on a pre-incorporated contracts.
(iii) Ratification are not possible in the case of the preliminary contract, as the ostensible principal not exist at the time of the contract.
- Position after 1963: the promoters found difficulties in carrying out the work before the Specific Relief Act, 1963, because the contracts prior to incorporation were void. The Specific Relief Act, 1963 came as a relief to the promoters. The Act provides that where the promoters of a public company have made a contract before its incorporation, for the purpose of the company and if the contract is warranted by the terms of its incorporation, the company may enforce it.
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