Natal Land & Colonization Co v Pauline Colliery & Development Syndicate

Facts

• A contract was entered into on behalf of the Pauline Colliery syndicate before its incorporation
• After incorporation, the syndicate purported to ratify the contract
• The question arose whether such ratification was legally effective

Issue

1. Whether a company can ratify a pre-incorporation contract: a contract made ostensibly on its behalf before it came into existence.

Held

• The Privy Council held that ratification was not possible. The fundamental rule of agency is that ratification can only be by a person who was in existence at the time the act was done. Since the company did not exist when the contract was made, it was never a competent principal and cannot ratify the contract.

Ratio Decidendi

The doctrine of ratification in agency law requires that the principal must have been in existence and ascertainable at the time the agent performed the act. A company not yet incorporated fails both requirements: it neither existed nor was capable of being ascertained as principal. Therefore, post-incorporation purported ratification of a pre-incorporation contract is a legal impossibility. The only way a company can assume such a contract is by entering into a new contract (novation) on the same terms after incorporation.