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 month. The collateral contract was signed ‘for and on behalf of’ the company by Mr. Lane. Both parties knew, at the time of the collateral contract, that the company had not yet been incorporated.
Held: Lane’s appeal failed. The Court expressly rejected the argument that section 9(2) should be construed solely by reference to the Directive.
Lord Denning MR said:
‘Section 9(2) is in accordance with the spirit and intent of the directive. We should go by our own statute and not by the directive . .’ #and ‘This is the first time the section has come before us. It will have much impact on the common law. I am afraid that before 1972 the common law had adopted some fine distinctions. As I understand Kelner v. Baxter (1866) L.R. 2 C.P. 174 it decided that, if a person contracted on behalf of a company which was nonexistent, he himself would be liable on the contract. Just as, if a man signs a contract for and on behalf ‘of his horses,’ he is personally liable. But, since that case was decided, a number of distinctions have been introduced by Hollman v. Pullin (1884) Cab. and Ell. 254; Newborne v. Sensolid (Great Britain) Ltd. [1954] 1 Q.B. 45 and Black v. Smallwood (1965) 117 C.L.R. 52 in the High Court of Australia. Those three cases seem to suggest that there is a distinction to be drawn according to the way in which an agent signs a contract. If he signs it as ‘agent for ‘X’ company’ – or ‘for and on behalf of ‘X’ company’ – and there is no such body as ‘X’ company, then he himself can be sued upon it. On the other hand, if he signs it as ‘X’ company per pro himself the managing director, then the position may be different: because he is not contracting personally as an agent. It is the company which is contracting.
That distinction was disliked by Windeyer J. in Black v. Smallwood. It has been criticised by Professor Treitel in The Law of Contract, 5th ed. (1979), p.559. In my opinion, the distinction has been obliterated by section 9(2) of the European Communities Act 1972. We now have the clear words, ‘Where a contract purports to be made by a company, or by a person as agent for a company, at a time when the company has not been formed…’ That applies whatever formula is adopted. The person who purports to contract for the company is personally liable.’
Oliver LJ said:
‘any such subtle distinctions which might have been raised are rendered now irrelevant by section 9(2) of the European Communities Act 1972 in a case where a contract is either with a company or with the agent of a company. It has been suggested that an agreement to the contrary may still be inferred by the fact that the contract was signed by a person acting as agent so as to exclude the section. That I am bound to say seems to me to be wholly unarguable when the section itself in terms provides ‘Where a contract purports to be made … by a person as agent for a company,’ and to interpret it in the way suggested would defeat the whole purpose of the section.’
Oliver LJ, Lord Denning MR, Shaw LJ
[1982] 1 QB 938, [1982] QB 938
European Communities Act 1972 9(2)
England and Wales
CitedNewborne v Sensolid (Great Britain) Ltd 1954
A written contract purported to sell goods by a company described as Leopold Newborne (London) Ltd. The document was subscribed by the name of the company with Mr Leopold Newborne’s signature under it. At that time it had not yet been incorporated. . .

Cited by:
CitedBraymist Limited and Others v Wise Finance Company Limited CA 20-Feb-2002
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 . .
CitedRoyal 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.
Updated: 23 August 2021; Ref: scu.619035