## Facts

- Phonogram Ltd., a record company, agreed to finance a proposed pop group intended to be managed by a company to be formed, Fragile Management Ltd.
- Phonogram agreed to advance £12,000, with an initial installment of £6,000.
- Before Fragile Management Ltd was incorporated, Phonogram sent a letter dated July 4, 1973 enclosing a £6,000 cheque “in anticipation” of a future recording contract with Fragile Management Ltd.
- The letter provided that if the recording contract was not concluded within one month, Lane would undertake to repay the £6,000.
- Brian Lane countersigned the letter “for and on behalf of” Fragile Management Ltd.
- The cheque was made payable to Jelly Music Ltd (a company associated with Lane) as an administrative convenience.
- Fragile Management Ltd was never incorporated, no recording contract was concluded, and the £6,000 was not repaid.
- Phonogram sued Lane personally to recover the £6,000.

## Issues

1. Whether European Communities Act 1972 § 9(2) imposed personal liability on a person who purported to contract as agent for a company that had not been formed.
2. Whether § 9(2) had to be read narrowly by reference to Directive 68/151/EEC so that it applied only where the company was genuinely “in the course of formation.”
3. Whether there was an “agreement to the contrary” sufficient to displace personal liability under § 9(2).

## Decision

- The Court of Appeal dismissed Lane’s appeal and affirmed judgment for Phonogram.
- The court held § 9(2) applied because the agreement purported to be made with, or through an agent for, a company that did not yet exist.
- Lane, as the person purporting to act for the unformed company, was personally liable for repayment of the £6,000.
- The court refused to restrict the clear wording of the domestic statute by importing narrower limits from the Directive.
- No “agreement to the contrary” excluding Lane’s personal liability was established.

## Legal Principles

- When a contract purports to be made by a company, or by a person as agent for a company, at a time when the company has not been formed, the contract is treated (absent contrary agreement) as made with the purported agent, who is personally liable.
- Statutory promoter/agent liability for pre-incorporation contracting turns on whether the contract purported to be made for an unformed company, not on technical signature formulas.
- Any “agreement to the contrary” displacing the statutory default of personal liability must be proved and is not inferred merely from corporate language or form of execution.
- Where the implementing statute is clear, it is applied according to its terms without being cut down by narrower readings drawn from the underlying directive.

## Conclusion

The court held that a person who signs an agreement on behalf of a company that has not been formed is personally liable under European Communities Act 1972 § 9(2) unless a contrary agreement is shown, and Lane was therefore liable to repay the £6,000 advanced in anticipation of a contract that was never concluded.


Phonogram Ltd. v. Lane, [1982] Q.B. 938 (Eng. C.A. 1981)