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ACCA Applied Skills · Corporate and Business Law (Global) · The formation and constitution of a company

Marco signs a supply contract as 'agent for Bluefin Ltd, to be incorporated'. Bluefin Ltd is later incorporated and its directors write to the supplier saying the company 'adopts' the contract. Which statement is correct under the general common law position?

Bluefin Ltd is not bound merely by adopting the contract. Because it did not exist when the contract was made, ratification is impossible. It becomes a party only by a new contract or novation, and Marco remains personally liable until then.

  1. ABluefin Ltd is now bound because adoption ratifies the contract with effect from the date it was signed
  2. BBluefin Ltd is not bound by adoption; it can become a party only through a new contract or novation, and Marco stays liable until thenCorrect
  3. CBluefin Ltd is bound and Marco is released automatically
  4. DThe contract is void and neither Marco nor Bluefin Ltd has any rights

Explanation

Ratification is not possible for a principal that did not exist when the contract was made. The company must enter a new contract, usually a novation agreed by all parties. Until then the promoter remains personally liable. Option A describes ratification, which is not available here.

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