The claimant company set out to sell land whilst it was still only in the process of incorporation. Its solicitors had signed as agents, and now sought an order for the purchaser to complete the contract. The respondent had not known of the non-incorporation of the company. The claimant later rescinded the contract, and forfeited the deposit. At first instance Etherton J had held that the solicitors had been capable of rescinding and had rescinded the agreement, that the contractual deposit was forfeit to the solicitors and that Wise was liable to pay the solicitors damages for breach of contract.
Held: The appeal failed. The section in the 1985 Act implemented a clause in the 1972 Act and the 1968 directive. Was the agent both liable under the contract and able to enforce it, and was the agreement unenforceable for failure to comply with the 1989 requirement for an appropriate memorandum? The European directive was to be interpreted directly. It was a compromise of different laws through member states, but was silent as to the ability of an agent to enforce such a contract. Section 36C should not be read down to limit its meaning. In this case, the solicitor agent could enforce the contract. As a party to the contract, he could also sign, and the 1989 Act should not be read too strictly.
Latham LJ said:
‘It is common ground that section 36C of the Companies Act 1985, and its predecessor, was enacted in order to give effect to article 7 of the First Council Directive (68/151/EEC) already referred to by Arden L.J. in her judgment, and in particular to reverse the decision of this court in Newborne v. Sensolid (Great Britain) Ltd. [1954] 1 QB 45. It also put to rest any doubts that there might have been as to the liability of a person who purports to act as an agent in such a situation . .’
Judge LJ explained to effect of Section 36C:
‘ . . The purported contract, otherwise a nullity, ‘has effect’, not as one made with the unformed company but as one made with the purported agent, who is ‘personally liable’ to [the other party] on the contract.’
Judge LJ, ultimately favoured ‘the broad view’ and said:
‘My difficulty is created by the concluding words of the subsection, ‘and he is personally liable on the contract accordingly’. If the contract ‘has effect’ as one made with the purported agent of the company, B [the ‘agent’] would become personally liable on the contract without the concluding words of the subsection. The contract ‘has effect’. The language of section 36C(1) reflects the broad thrust of the First Council Directive (68/151/EEC), first implemented domestically in its predecessor, section 9(2) of the European Communities Act 1972 . The recital twice refers to ‘protecting’ third parties . .
If the broad view is correct, the statute has gone much further than the creation of new protection for A [the other contracting party]. Plainly, as a matter of statutory construction, section 36C(1) may have extended beyond simple compliance with the Directive. Nevertheless the concluding words add something: if surplusage, they would not be there. Their presence provides a clear indication that the highlight of section 36C(1) is protection for A.’
Judge LJ continued:
‘In principle, the identity of the other party to a contract often matters, sometimes very much indeed. A might happily contract with C, but not with either B, or even D, even if identical terms were available. He may have a complete antipathy to being beholden to or under any legal obligation personally to B, or indeed anyone other than C. There are, of course, well understood exceptions to the principle that an individual is free to decide whether and with whom to enter or not to enter, a contract (for example, the legislation in relation to discrimination on the grounds of sex or race). But I may illustrate the difficulties by considering a contract of employment, underlining that so far as unformed companies are concerned, there are no limits to the contracts to which section 36C(1) applies: it applies to them all. A may welcome the opportunity of employment, as, say, an office manager for a particular company, with which he is contracting. If the company is unformed, is he bound to accept similar employment on identical contractual terms, with B? Or become liable to B for breach of contract if he refuses or fails to do so? Surely not. The answer however is not that the contract is automatically deprived of the ‘effect’ which section 36C(1) has created, but rather, that just as section 36C(1) is not apt to exclude considerations such as illegality, or misrepresentation, or other incidents of a contract, it is equally inappropriate to exclude relief on the basis of the identity of the contracting party, if relief would be available on ordinary contractual principles.’
Judges:
Lord Justice Judge, Lord Justice Latham, Lady Justice Arden
Citations:
Gazette 28-Mar-2002, Times 05-Apr-2002, [2002] EWCA Civ 127, [2002] Ch 273, [2002] 1 BCLC 415, [2002] 2 All ER 333, [2002] 3 WLR 322
Links:
Statutes:
Companies Act 1985 36C(1), European Communities Act 1972 9(2), First EC Company Law Directive (68/151/CEE OJ No. 1968 L6) Art 7, Law of Property (Miscellaneous Provisions) Act 1989 2(1) 3
Jurisdiction:
England and Wales
Citing:
Cited – Phonogram Ltd v Lane CA 1982
A collateral contract was entered into with a company which had not then been incorporated under which an advance by Phonogram to support an intended new pop group was repayable by the company if a recording contract was not entered into within one . .
Cited by:
Cited – Royal Mail Estates Limited v Maple Teesdale Borzou Chaharsough Shirazi ChD 2-Jul-2015
A contract had been made but one of the parties was not yet incorporated. The court was asked whether it was deemed to have been made with the signatory.
Held: For section 36C(1), a ‘contrary agreement’ would be established if the parties, . .
Lists of cited by and citing cases may be incomplete.
Company, Land, Legal Professions, European, Contract
Updated: 05 June 2022; Ref: scu.167665
