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Category: Incorporation

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Incorporation

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

ISSUE:

Whether the agents i.e. the promoters of the company were liable for the pre-incorporation contract when the contract had been ratified by Gravesend after the incorporation?

RULE:

This case is concerned with the enforcement of a pre-incorporation contract. The position is that a pre-incorporation contract does not bind the company, although certain exceptions exist in this regard. However, this case reaffirmed the standing position that a company is not bound by any contract that it may have entered into before the company was incorporated.

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Incorporation

Erlanger v. New Sombrero Phosphate Co. (1878) 3 App Cas 1218

ISSUE:

Was Erlanger liable to Phosphate due to not disclosing his conflict of interest?

RULE:

It concerned rescission for misrepresentation and how the impossibility of counter restitution may be a bar to rescission. It is also an important illustration of how promoters of a company stand in a fiduciary relationship with subscribers.

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Incorporation

Gluckstein v. Barnes,  [1900] AC 240

ISSUE:

Whether the promoters breached their fiduciary duties to the company?

RULE:

Promoters of a company had acquired a property intending its resale through the sale of shares in the company. In doing so the original directors made a substantial profit which they did not disclose (though it was discoverable). The company became insolvent and investors sought repayment of the hidden profit.

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Incorporation

Weavers Mills v. Balkis Animal AIR 1969 Mad 462

ISSUE:

Can the company’s title over the property be set aside even in the absence of conveyance of property by the promoter in favour of the company after its incorporation?

RULE:

The logic which was followed was that the promoter is a quasi-trustee and can be obliged to transfer the property. Specific Relief Act which was passed in 1963 provided some relief to the Promoters. Section 15(h) of this act says that if a public company has made a contract with the promoters before incorporation, they can impose it. It says that the contracts entered by the promoters are for the benefit of the company. The company should accept the terms of the contract. Not only the companies can enforce pre incorporation contracts, but other parties can also enforce it on behalf of the company.

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