Pre- incorporation Contracts are contracts purported to be made on behalf of a company before its incorporation. Before incorporation, a company is non- existent and has no capacity to contract. Hence a contract, by a promoter purporting to act on behalf of a company prior to its incorporation, never binds the company because at the time the contract was concluded, the company was not in existance, The promoters alone, therefore, remain personally liable for any contract they purport to make on behalf of company.
Evev a company can not rectify a pre-incorporation contract. However, it is always open for a company to enter into a new contract after its incorporation to give effect to a contract made before its formation. That is called novation of propmoter's contract.
Since the pre-incorporation contract is a nullity, even the company can not sue the vendor of property, if he fails to carry out such contract. In India, However, Section 15 and 19 of the Specified relife act, 1963 have considerably alleviated the difficulty.
Section 15(h) provides that where a pre-incorporation contract is warranted by the terms of incorporation of company, The company may, if it has accepted the contract and has communicated such acceptance to the other party to the contract, obtain such specific proformance of the contract.
Similarly, Section 19(e) provides that specific proformance may be enforced against the Company by other party to the contract under similar circumtance.