Section 36C(1) of Companies Act 1985 – Fourth claimant signing contract for sale of land as agent for vendor company – Vendor company not formed at date of contract – Defendant buyer failing to comply with notice to complete – Fourth claimant rescinding and forfeiting deposit – Defendant disputing existence of valid contract – Whether section gave claimant right to enforce contract – Whether contract in any event signed in accordance with Law of Property (Miscellaneous Provisions) Act 1989 – Claim upheld
In January 1993 the defendant, Wise Finance Co, entered into a written contract to buy a parcel of land in Chudleigh, Devon, for £50,000. It paid a deposit of £5,000 to the fourth claimant (WS), a firm of solicitors that had signed the contract as solicitor and agent for the vendor, Braymist Ltd, which was the first claimant. In signing, Ws had acted on the instructions of the second defendant, Plumtree Ltd, which was the owner of the land, and the third defendant, P, who had a controlling interest in Plumtree. Braymist Ltd first came into existence in April 1993 when P arranged for that name to be given to an off-the-shelf company that he had acquired some weeks previously.
Completion of the deal did not take place by the date specified by the contract, which was in January 1994. Later that month, WS received from P a transfer under r 72 of the Land Registration Rules, in a form appropriate to a subsale, which was duly executed by and on behalf of Plumtree Ltd and Braymist Ltd. In February 1994 WS served a notice to complete on the defendant, expressed to expire in February 1994, which passed without completion taking place. In March 1994 WS notified the defendant that it had rescinded the contract and forfeited the deposit.
In the High Court, the claimants sought damages in addition to the forfeiture of the deposit. The defendant counterclaimed for the return of the deposit, contending, inter alia, that no valid contract had been entered into because: (i) Braymist Ltd was not in material existence at the time the contract was entered into; or (ii) alternatively, the contract had not been signed in accordance with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
On the first issue, the claimants relied upon section 36C(1) of the Companies Act 1985 (re-enacting section 9(2) of the European Communities Act 1972), which declares that, unless otherwise agreed, 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 defendant argued that this section, when construed in the light of the directive, did no more than impose liability under the contract upon WS, who accordingly had not acquired the right to enforce it.
Held: WS had the right to enforce the contract and to retain the deposit with interest.
1. WS would have had no case in common law (see Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45), and would have been unable to enforce the contract if the section had been drafted so as to give literal effect to the directive. However, the literal meaning of the section clearly contemplated enforcement, and since it gave effect to the directive, the court was not required to construe it solely by reference to the directive: see Phonogram v Lane [1982] QB 938.
2. Given that the Act had not provided for a scheme enabling a newly-formed company to ratify a pre-incorporation contract, there was nothing objectionable, from a European perspective, in applying a construction that gave effect to the directive not only by protecting third parties dealing with persons acting on behalf of a non-existent company, but also by conferring rights on such persons. The result was neither unworkable nor unfair, and created a situation of mutuality between the parties with regard to the statutorily-deemed contract.
3. However, the defendant was correct in its assertion that WS was the only party among the claimants that had acquired the right to enforce the contract. At the time the contract was made, WS alone could be described, for the purpose of the section, as a person purporting to act for the company.
4. For the foregoing reason, there was no question of non-compliance with the provisions of the 1989 Act. Construing that Act against the background of section 36C(1), the agreement in issue was a comprehensive written contract signed by the statutorily-deemed vendor. To hold to the contrary would make the 1985 Act provisions entirely useless in the case of contracts for the disposition of land.
Barbara Rich (instructed by William Sturges & Co) appeared for the claimants; Mark Blackett- Ord (instructed by Tarran Jones & Co, of Crawley) appeared for the defendants.
Alan Cooklin, barrister