Braymist Ltd v The Wise Finance Co Ltd

A contract purportedly made for a company before its incorporation takes effect under section 36C(1) of the Companies Act 1985 as a contract with the person purporting to act for it. That person may enforce the contract as well as incur personal liability, subject to ordinary contractual rules, including rules concerning material mistake as to identity, misrepresentation and illegality.

Where the deemed contracting party signed a land-sale agreement as agent for the unformed company, the signature satisfied section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. The two statutes must be construed so that each operates effectively.

Solicitors signed a contract as agents for a company which was then in the course of incorporation. The contract concerned the sale of land to Wise Finance Company Ltd. The company was never incorporated, and the solicitors sought to enforce the purchaser’s obligations under section 36C(1) of the Companies Act 1985.

Etherton J declared that the agreement had been effectively rescinded following the purchaser’s failure to complete, that the deposit was forfeited and that the solicitors were entitled to damages. Wise appealed with the judge’s permission.

The principal questions were whether the solicitors could enforce the pre-incorporation contract; whether the land-sale formalities had been satisfied; whether they were ready and willing to complete; and whether a drainage covenant rendered the title defective.

1. Appeal dismissed unanimously. All three members of the court concluded that the solicitors could enforce the pre-incorporation contract against the purchaser.

2. By a majority on the statutory route, Latham and Judge LJJ held that section 36C(1) of the Companies Act 1985 gave the contract effect as one made with the person purporting to act for the unformed company. Its effect was bilateral: that person acquired the contractual benefits and remedies as well as the corresponding obligations. The concluding reference to personal liability did not give the purchaser a unilateral option to adopt or reject the contract.

3. Arden LJ reached the same result by a narrower route. In her view, section 36C(1) conclusively imposed personal liability but left the purported agent’s right to enforce to the general law. The common-law circumstances in which an agent may disclose himself as the true principal were not fully defined. On the facts, however, the identity of the vendor was of no significance to the purchaser, so there was no common-law bar to enforcement.

4. The court agreed that ordinary contractual incidents and defences remained available. A deemed contract may still be affected by illegality, misrepresentation or a legally material mistake concerning the contracting party’s identity. Such matters did not arise merely because the purchaser later regarded the transaction as a bad bargain.

5. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 was satisfied. Once the solicitors were treated as a party under section 36C(1), their signature as agent was properly treated as a signature on their own behalf. This construction allowed the two statutory provisions to operate coherently.

6. The solicitors were ready and willing to complete. They possessed an executed transfer from the registered owner in the form required by the purchaser and had instructions enabling the transaction to proceed. The registered owner’s insolvency did not, without more, restrict its directors’ powers.

7. The drainage restriction in the later deed was consistent with the contractual covenant. In any event, the purchaser’s solicitor waived any objection by submitting a transfer which expressly required observance of that restriction. The notice to complete was therefore valid. The purchaser was ordered to pay the respondents’ costs, and permission to appeal to the House of Lords was refused.

• Court of Appeal: The appeal was dismissed unanimously. The order of Etherton J was upheld.
• High Court, Chancery Division: Etherton J declared that the agreement had been effectively rescinded, that the deposit was forfeited and that the purchaser was liable for damages and interest. The counterclaim was dismissed.