A recent Privy Council ruling provides very useful insight into the effect and enforceability of contracts entered into prior to the incorporation of a Bahamian company.
It has long been accepted that in The Bahamas there is no such thing as absolute title to land. Rather, title to real property in The Bahamas is, essentially, relative. In a practical sense, this means that two or more persons may have title to the same property. What has to be determined is the priority of the relative titles. In a straightforward scenario, this is done by ascertaining which of the title holders first recorded his conveyance as, pursuant to section 10 of the Registration of Records Act, priority is determined by the order in which instruments are recorded.
Against the above background, the Privy Council in Rolle Family and Company Limited v. Rolle  UKPC 35, recently considered the ownership of land which had been conveyed by a father firstly to his daughter and subsequently to a company owned by his son. The son’s company (“the Company”) registered its instrument first and therefore, in the usual course, would have had priority over the daughter even though the father had conveyed the land to her first. What made this situation notable, however, was the fact that at the time of the conveyance, the Company had not yet been incorporated and only legally came into existence four days later.
Upon challenge by the daughter, both the Supreme Court and the Court of Appeal found in her favour and determined that the conveyance to the Company was void.
On appeal by the Company to the Judicial Committee of the Privy Council, the case was ultimately determined by the Privy Council’s application of section 22 of the Companies Act, 1992 to the facts. Section 22 provides that where a written contract is entered into in the name or on behalf of a company prior to that company’s incorporation:
- the person who entered into the contract is personally bound by it and is entitled to its benefits; and
- the company may retrospectively adopt the contract as its own if it does so within a reasonable time after its incorporation.
The Privy Council was satisfied that the conveyance to the Company could have been made effective under this provision. However, the Company had not recorded the conveyance until eight and a half months after it was incorporated. At first instance, the Supreme Court ruled that this was an unreasonable period of time and the Privy Council concurred. Accordingly, as recordation was the only overt step taken by the Company to adopt the conveyance after its incorporation, the Privy Council ruled that the conveyance had not been adopted by the Company within a reasonable time after the Company was incorporated.
The Privy Council declined to go further and declare that the daughter had title to the property. Instead, it reserved judgement on the question as to whether the son (who was not a party to the proceedings) was in fact the legal owner of the property pursuant to section 22.
While the Privy Council’s ruling in this case confirms the enforceability of pre-incorporation contracts, it clearly establishes that steps to adopt the contract must be taken by the company as soon as possible after incorporation. It also establishes the need to exercise caution in relation to pre-incorporation contracts.
For more information, contact Audley D. Hanna, Jr.
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