Accounting Treatments for identifiable intangible assets
only Bay was personally liable, as he was the only person who signed the contract. However, it was indicated that Bay would have a separate claim against the other three promoters if he acted as their agent in relation to the contract.
According to the cases that were mentioned above, Section 131(1) has changed the common law rule in which a company cannot approve or ratify a pre-registration contract. However, this does not apply where a company has actually been registered at the time when a contract is made, but the company has changed its name. This kind of conduct was exhibited in the case of Commonwealth Bank of Australia V Australian Solar Information Pty.Ltd (1987) 5 ACLC 124. Under Section 131(2), if the contract is not approved, or a company is not established within a certain period, the promoter will become liable to the opposing party for damages. This was described in Bay’s case. Furthermore, the promoter does not need to perform the contract, nevertheless, they must pay the damages that would have been awarded if the contract was accepted, but the company did not perform it. Therefore, Section 131 is mainly concerned with a contract that a person has entered into or intends to enter into, on the behalf of a company prior to its incorporation. This is largely relied upon the effectiveness of a company that comes into existence, which is similar with the company for whom an agent had initially entered into the contract.
Sections 131 and 132 of the corporations act originated from provisions which were first enacted in 1981. These were made inorder to meet inadequacies in the unenacted law regarding pre-registration contracts. The main purposes of this according to Ford, Austin & Ramsay (2001, p.667) were:
- to enable pre-registration contracts to which it applies to be ratified by a company that is formed after the contract is entered into;
- to impose statutory liability upon a promoter to compensate the third party, where a contract to which section 183 applies is not ratified; and
- in relation to contracts in which the section applies to withhold from promoters from a later formed company and from third parties all rights and liabilities in relation to the contract, other than those that are provided by the section.
This also prompts Ford et.al (2001, p.667) to state that Sections 131 and 132 are suited to a contract in which a person has entered into, or intends to enter into, on the behalf of a company prior to its incorporation. Furthermore, it is presumed that the entity must be an organization which could be registered under the corporations law, according to Ford et.al (2001, p.668) . This leads to the ratification doctrine stating that the approving principal must be in a position to enter into the contract at the same time, when the agent initially commenced their actions. As a result, a [next page]