Legal Updates

An agreement made for a company in incorporation will be obligating if the company ratified it after its incorporation

May 27, 2018

A person purchased real estate on behalf of a company that he incorporated only three weeks later and adopted the agreement after its incorporation. A few days later, the seller withdrew and sold the land to another.

The Supreme Court held that a valid agreement with the company exists. Actions taken by an entrepreneur of a company prior to the establishment of the company may oblige it, if it ratifies it after its incorporation. An action shall be considered as an entrepreneurial action to the extent that it meets the test of “intent and completion", which applies two cumulative conditions: the act must be foreseen as performed for the corporation and in its name; and at the time of execution the entrepreneur had in front of it a particular corporation for which the action is done. The company, after its incorporation, has full discretion whether to ratify the agreement and to act according to it and thus, a party contracting with a company in incorporation bears a risk that the agreement will never be implemented.