Agents without principals: pre-incorporation contracts and section 36C of the Companies Act 1985

Abstract

The problems associated with pre-incorporation contracts are due to the essentially artificial nature of a company’s existence and personality. The existence of a company, unlike that of a natural person, is not something which can be readily ascertained but is a matter of legal formality. There is a good case for treating pre-incorporation contracts as sui generis, but until 1973 their legal effect was governed by common law principles of contract and agency which drew little distinction between companies and natural persons. The result was unsatisfactory and widely criticised, one commentator remarking that ‘it is rare to hear such a widespread and common opposition against any aspect of English company law’. Section 9(2) of the European Communities Act 1972 (now to be found in s 36C of the Companies Act 1985) made a partial reform of this law, but did not deal with the inability of a newly formed company to ratify or adopt a pre-incorporation contract made on its behalfeven though this was a major deficiency of the common law.