Kelner v Baxter
Rule established
A principal must be in existence at the time of the act for ratification to be possible. Promoters who contract on behalf of a company not yet incorporated are personally liable, and the company cannot ratify the contract after incorporation.
Facts
- The defendants were promoters of a proposed hotel company.
- Before incorporation they signed an agreement to purchase a quantity of wine from the plaintiff, signing "on behalf of" the proposed company.
- The wine was delivered and consumed.
- The company was subsequently incorporated and its directors purported to ratify the agreement.
- The company went into liquidation without paying for the wine.
- The plaintiff sued the promoters personally.
Issue
- Whether the promoters were personally liable on a contract made before incorporation, and whether the company could ratify it once formed.
Held
- The promoters were personally liable. Erle CJ held that where a contract is signed by one who professes to be signing as agent but who has no principal existing at the time, the contract is wholly inoperative unless it binds the person who signed it. Ratification was impossible: a company cannot ratify a contract entered into before it came into existence, because there was no principal capable of authorising the act at that time. The promoters, having contracted, were bound.
Ratio Decidendi
Ratification requires a principal in existence and competent at the date of the act, since ratification operates retrospectively to supply authority that could have been given at that moment. Where no such principal existed, the contract must either bind the signatory personally or be a nullity, and the law prefers to hold the signatory liable rather than leave the other party without remedy.
How to use it in an exam
- The leading authority on pre-incorporation contracts, and on the third limb of S.230 of the Indian Contract Act, where the principal cannot be sued.
- One of the conditions of valid ratification under S.196: the principal must have been in existence and competent at the time of the act.
- Note the modern Indian statutory position, under which a company may adopt pre-incorporation contracts entered into for its purposes in specified circumstances, which alters the practical outcome without displacing the principle.
- Pair with Keighley, Maxsted and Co v Durant (1901) as the two classic limits on ratification.
Source
Source: (1866) LR 2 CP 174; leading authority on pre-incorporation contracts; citation and bench checked against Indian Kanoon and reported sources, audit of 12 August 2026
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.