Phonogram Ltd v Lane
A person who contracts on behalf of a company not yet formed is personally liable under the statute, unless the contract clearly excludes his liability, regardless of the form of signature.
Facts
Mr Lane was negotiating for the formation of a company, Fragile Management Ltd, to manage a pop group called Cheap Mean and Nasty. Phonogram, a record company, agreed to advance £6,000 to finance the group, and Mr Lane signed a letter acknowledging receipt of the first payment for and on behalf of Fragile Management Ltd, which had not yet been formed. The company was never formed, and Phonogram sought to recover the money from Mr Lane personally.
Legal principle
The Court of Appeal held that Mr Lane was personally liable under section 9(2) of the European Communities Act 1972, now section 51 of the Companies Act 2006. Lord Denning MR said that the section applied wherever a person purports to contract on behalf of a company not yet formed, whether he signs as agent or in any other way, and that the words subject to any agreement to the contrary meant an express agreement that he would not be liable, not merely the fact that he signed on behalf of the company. It did not matter that the company was not yet in the course of formation.
Related cases on corporate contracts, agency and attribution
- Bilta (UK) Ltd v Nazir (No 2) [2015] UKSC 23, [2016] AC 1
- Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
- Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549
- Kelner v Baxter (1866) LR 2 CP 174
- Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705
- Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500
- Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45
- Rama Corp Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147
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