Court Court of Common Pleas Citation(s) (1866) LR 2 CP 174 | Decided 14 November 1866 End date November 14, 1866 | |
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Judge(s) sitting Erle CJ, Willes J, Byles J, Keating J Similar Erlanger v New Sombrero, Freeman v Buckhurst Park Prop, Lee v Lee's Air Farming Ltd, Macaura v Northern Assuranc, Salomon v A Salomon & Co Ltd | ||
Kelner v Baxter (1866) LR 2 CP 174 is a UK company law case, concerning pre incorporation contracts.
Contents
Facts
A group of company promoters for a new hotel business entered into a contract, purportedly on behalf of the company which was not yet registered, to purchase wine. Once the company was registered, it ratified the contract. However, the wine was consumed before the money was paid, and the company unfortunately went into liquidation. The promoters were sued. They argued that their liability had passed to the company, and were not personally accountable.
Prior to Incorporation Kelner v Baxter.[1866] L.R.2 CP 174 The promoters of a hotel company entered into a contract on its behalf for the purchase of wine. When the company formally came into existence it ratified the contract. The wine was consumed but before payment was made the company went into liquidation. The promoters, as agents, were sued on the contract. They argued that liability under the contract had passed, by ratification, to the company. It was held, however, that as the company did not exist at the time of the agreement it would be wholly inoperative unless it was binding on the promoters personally and a stranger cannot by subsequent ratification relieve them from that responsibility.
On the other hand, a promoter can avoid personal liability if the company, after incorporation, and the third party substitutes the original pre-incorporation contract with a new contract on similar terms. Novation, as this is called, may also be inferred by the conduct of the parties such as where the terms of the original agreement are changed.
A promoter can also avoid personal liability on a contract where he signs the agreement merely to confirm the signature of the company because in so doing he has not held himself out as either agent or principal. The signature and the contractual document will be a complete nullity because the company was not in existence (Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45).
Kelner v Baxter (1866)
Judgment
Erle CJ held the promoters were personally liable. He said the following.