In South Africa, the concept of an implied warranty in pre-incorporation contracts refers to the obligations and assurances that are assumed to be included in agreements made on behalf of a company that has not yet been officially registered. Here are the key points:
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Authority to Contract: When an individual enters into a contract on behalf of a company before its incorporation, there is an implied warranty that the company will be incorporated. This means that the person acting on behalf of the company is assumed to be making a promise that the company will come into existence and will be able to fulfill the contractual obligations.
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Liability of Promoters: If the company fails to incorporate, the individuals (promoters) who entered into the contract may be held personally liable for the obligations set forth in that contract. Courts may impose responsibility on the promoters because the expectation was that the company would be formed and assume those obligations.
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Protection of Third Parties: This implied warranty serves to protect third parties who rely on the assurance that the company will be incorporated. If the company is not formed, the third party can seek remedies from the promoters based on their reliance on the implied warranty contained in the pre-incorporation contract.
In summary, the implied warranty in pre-incorporation contracts in South Africa signifies the expectation of company formation and the associated potential liabilities for the promoters if the company fails to materialize.