Sale of land — Respondent signing contract for sale of land as agent for unincorporated company — Appellant purchaser failing to comply with notice to complete — Judge holding respondent entitled to rescind and to forfeit purchaser’s deposit — Whether contract complying with statutory formalities — Whether respondent entitled to enforce contract — Section 36C(1) of Companies Act 1985 — Section 2 of Law of Property (Miscellaneous Provisions) Act 1989 — Appeal dismissed
The respondent firm of solicitors, acting as agent for B Ltd, signed a written contract to sell a parcel of land, in Devon, to the appellant, and accepted a deposit in respect of the purchase price. At the date of contracting, B Ltd was still in the process of incorporation.
Completion of the deal did not take place by the date set out in the contract, and the respondent served a notice to complete. When the appellant failed to complete by the date specified in that notice, the respondent notified it that it was rescinding the contract and forfeiting the deposit. The respondent also brought a claim for damages, in which the appellant counterclaimed for the return of the deposit on the ground, inter alia, that no valid contract had been entered into because the vendor, B Ltd, had not existed at the time of contracting.
The judge held that a valid contract had been formed between the respondent and the appellant by virtue of section 36C(1) of the Companies Act 1985, originally enacted as section 9(2) of the European Communities Act 1972 to give effect to Article 7 of EC Directive 68/151/CEE OJ No 1968 L6. Section 36C(1) declared that a contract purportedly made on behalf of a company yet to be formed “has effect… as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly”. The judge approached that section, applying Phonogram Ltd v Lane [1982] QB 938, on the basis that it should not be construed by reference to the directive. He held that section 36C(1) should be construed not only as imposing liability upon the appellant but also as giving it the right to enforce the contract. The directive provided only for the former.
The judge further held, inter alia, that the contract satisfied the requirements of section 2(1) and (3) of the Law of Property (Miscellaneous Provisions) Act 1989, which provided that contracts for the sale of land had to be signed by, and on behalf of, each of the parties to the contract, even though the respondent had signed as an agent of B Ltd and not in its own right. The appellant appealed.
Held: The appeal was dismissed.
1. A change of approach had taken place since the decision in Phonogram, and it was now the practice, as required by the jurisprudence of the European Court of Justice, to construe domestic legislation, where possible, in conformity with the directive that it aimed to implement: see Litster v Forth Dry Dock & Engineering Co Ltd [1990] 1 AC 546 at p559. However, the aim of the directive was to co-ordinate provisions for the protection of shareholders and third parties, and that was achieved by imposing personal liability upon the agents responsible for the pre-incorporation acts of a company. The directive had nothing to say on the question of whether an agent who became personally liable on a contract under Article 7 should also be able to enforce it, so it did not assist in construing section 36C(1). Although section 36C(1) went further than the directive required, it was not appropriate to read it so that it gave effect to the directive and no more.
2. Parliament had provided, in section 36C(1), that a contract made by an agent on behalf of an unincorporated company was to take effect as a contract with the agent. That being so, however, the only consequence for which the section legislated was that the agent should be personally liable. It did not give the agent the right to enforce the contract, or provide that the contract was to take effect as if the agent were the principal. Although it provided that the agent was the contracting party, the question of whether it could enforce the contract was left to the common law. The position at common law was not that an agent could, in all circumstances, come forward and claim to be a principal on a contract that he had made as agent. However, the contract between the respondent and appellant was enforceable by the respondent on the basis that it was of no moment to the appellant whether the party selling the property was B Ltd or the respondent: Schmaltz v Avery (1851) 16 QB 655 applied.
3. Once it was decided that the respondent was a party to the contract, by virtue of section 36C(1), and that there was no common law bar to its enforcing that contract, the respondent was, for the purposes of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, properly to be treated as having signed the agreement on its own behalf. The judge had correctly held that the requirements of that section had been complied with.
Mark Blackett-Ord (instructed by Tarran Jones & Co, of Crawley) appeared for the appellant; Barbara Rich (instructed by William Sturges & Co) appeared for the respondent.
Sally Dobson, barrister
