The issue of this case is whether the contract between Syarikat Chable Sdn Bhd and Pah Wer

on behalf of Syarikat Bahgoos Berhad is valid or not. Syarikat Chable Sdn Bhd case is related to the pre-incorporation contracts. That is contracts made before a company is incorporated. As the company has no physical nor legal capacity then to cater into any transactions the promoters are responsible for acting for the company. Common law position stated that company is not bound by a contract made before it is incorporated. The company does not have any existence then, and only comes into being on and after the date of incorporation. According to the principles of the law agency, if a principal that is not yet in existence, an agent cannot be created and have authority to act for it. As the company was non-existent at the time the contract was made by the promoter, neither can the company be bound by such contract, nor does it ratify the contract after it is formed. In Kelner v Baxter case, the court held that the company was not bound to the contract that had been signed by the promoters before its incorporation. The promoters were made personally liable on the contract. In Newborne v Sensolid case, a contract made on behalf of a company that was not yet incorporated. Where the promoter merely signed the contract. The Court of Appeal upheld his defence. The contract was void. If Syarikat Chable Sdn Bhd settled the case under common law, they will lose the case as common law is very strict. Relate to the case Kelner v Baxter and Newborne v Sensolid above, although the company made the contract with Pah Wer that is promoter for Syarikat Bahgoos Berhad and that company had used the goods supplied by them, that company still not liable to the contract as the contract is signed before the company incorporation. The contract was also void.

On the other hand, according to section 35(1) of companies Act under Malaysia Position, any contract or other transaction purporting to be entered by a company prior to its formation or by any person on behalf of a company prior to its formation may be ratified by the company after its formation and thereupon the company shall become bound by and entitled to it the benefit thereof as if it had been in existence at the date of the contract or other transaction and had been a party thereto. This section mean when a contract is supposed to be made by a company, or by a person as agent at the time when the company has not yet been incorporated, the company may ratify the contract. Outsiders can take action against the company if it ratifies the contract after it is incorporated. If the company does not ratify, then they can take action against the persons who entered into the contract on behalf of the company before its incorporation. The contract, however, must have been entered into by the company or by any person on the companys behalf before incorporation and the ratification by the company must be after it is formed. There are two condition must be satisfied in order to make pre-incorporation contract binding upon a company. First, the contract must purportedly have been entered into by any person on behalf of the company before its incorporation. Second, the company must ratify the contract after its formation. That ratification may be express or implied. It is express where the company passes a resolution specially adopting a particular contract. It is implied where the company does some act indicating unequivocally that it considers the contract to be binding. For example, if goods ordered under the contract were used by the company that would probably amount to implied ratification. Under case Syarikat Chable Sdn Bhd, Syarikat Bahgoos Bhd is bound to the contract as according section 35(1) above. In this case, Pah Wer signed the contract on behalf of the company prior to its formation, which is may be ratified by the company after its formation. Even if Syarikat Bahgoos Bhd want to claim that they not ratify the contract made by Pah Wer and Syarikat Chable Sdn Bhd, and refuse to pay for the goods supplied. The act of the company by using the chairs and tables supplied had express that the company had ratified the contract which is they already fulfill both condition that bound the contract before incorporation of company.

In a conclusion, it is suggested that Syarikat Chable Sdn Bhd sue Syarikat Bahgoos Berhad under section 35(1) as Pah Wer act on behalf of Syarikat Bahgoos Berhad prior its formation, signed the contract with Syarikat Chable Sdn Bhd. Due to the act of Syarikat Bahgoos Berhad that had used the chairs and tables supplied by Syarikat Chable Sdn Bhd showed that the company had ratified the contract between Syarikat Chable Sdn Bhd and Pah Wer. Upon ratification the company becomes bound and entitled to the benefit of the contract as if it had been in existence at the date of the contract. But the company does not have to ratify a preincorporation contract. Ratification is entirely discretionary and voluntary act on the part of the company. Until it does so, the person who made the contract will be liable upon it and will be entitled to enforce it.