The High Court has considered the liability of a person who purports to make a contract for a company that has not yet been incorporated. Although this case concerns a contract signed in 2008 and is therefore a decision under the Companies Act 1985, the relevant section was re-enacted in the Companies Act 2006.
Section 36C of the Companies Act 1985 (now section 51 of the Companies Act 2006) provides that a contract or deed that purports to be made by or on behalf of a UK company when the company has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as its agent. That person is personally liable on the contract or deed accordingly.
The contract in this case related to the sale and purchase of a property in London. The contract included a clause which stated that "…the benefit of this Contract is personal to the Buyer…".
The defendant firm of solicitors signed the contract "for an on behalf of the Buyer". However, unknown to them and the seller, the buyer was not yet incorporated. The seller later sought to enforce the contract against the defendant firm. The defendant firm, however, applied to have the claim struck out. Its argument was that "…the benefit of this Contract is personal to the Buyer…" in the contract had effect as an agreement to the contrary for section 36C purposes.
The court rejected the defendant's interpretation. It held that it was necessary to be able to show that the parties had meant to exclude the effect of section 36C. It was not enough that the contract included a clause which, if given its widest interpretation, was inconsistent with treating the contract as made with the person signing.
This case highlights the importance of checking that a party to a contract is in existence before signature of the contract, and in particular the potential liability that an agent may incur if it is not. The position is also the same if the company in question is an overseas company. The Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 extend what is now section 51 to a contract or deed made by or on behalf of an overseas company when that company has not yet been incorporated.
Royal Mail Estates Ltd v. Maples Teesdale  EWHC 1890 (Ch)