Kelner v Baxter

A person who contracts on behalf of a company that has not yet been formed is personally liable on the contract, and the company cannot ratify it once formed.

Citation
(1866) LR 2 CP 174
Court
Court of Common Pleas
Year
1866
Subject
Company Law
Topic
Corporate contracts, agency and attribution

Facts

Mr Kelner agreed to sell wine to the promoters of a hotel company, who signed the contract on behalf of the proposed company, which had not yet been formed. The company was formed, and the wine was delivered and consumed, but the company went into liquidation before paying for it. Mr Kelner sued the promoters personally.

Legal principle

The court held that the promoters were personally liable. Erle CJ said that, since the company did not exist when the contract was made, it could not be a party to it, and it could not ratify the contract after it was formed, because a principal can only ratify a contract if he was in existence at the time it was made. The parties must have intended that someone would be liable, so the promoters were personally liable. The rule is now in section 51 of the Companies Act 2006.

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This summary is for study and revision and is not legal advice. Although our case summaries are checked for accuracy, we do not guarantee that they are free from errors or omissions. Always read the full judgment for the court's reasoning.

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