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Ratifcation of contract

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA LW Exams › Ratifcation of contract

  • This topic has 1 reply, 2 voices, and was last updated 10 months ago by MikeLittle.
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  • March 26, 2022 at 11:51 pm #651973
    ilham9089
    Member
    • Topics: 236
    • Replies: 171
    • ☆☆☆

    I was wondering what the ratification of a contract means. For example, “Legally, Pre-incorporation contracts cannot be ratified by the company”. I understand the statement but I do not exactly understand what the word ratify means.

    March 27, 2022 at 8:20 am #651994
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22705
    • ☆☆☆☆☆

    I believe that the context in which you have read this element is the area of Agency Law

    In company law, certainly, it’s not possible for a company post-incorporation to ratify a promoter’s pre-incorporation contracts made ‘on behalf of’ the the as-yet-unborn company

    That bit about ‘as-yet-unborn’ is crucial. You cannot act as an agent on behalf of an entity that doesn’t exist

    But, in the law of Agency, an unauthorised person can act as the agent of a principal because the principal DOES exist. It may well be the case that the principal has no idea about what this unauthorised person is getting up to! But, on subsequent discovery, the principal may say to her / himself ‘Hmmm, that’s a good deal that this unauthorised person has entered into apparently on my behalf. Yes, I think I’ll accept that deal even though the person had no right to enter into the contract’

    But you’re correct – it’s not possible for a company to ratify a pre-incorporation contract

    OK?

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