A contrary agreement often occurs where a contract is sought between two or more parties but one or more of the parties is a company yet to be incorporated. The contract will in effect have a party that, subject to any agreement to the contrary, is a person acting for or as an agent for, the company. The person/agent will therefore have personal liability unless there is a Contrary Agreement.

Contrary Agreements are regulated by s. 36C(1) of the Companies Act 1985 for contracts purported to be made before 1 October 2009. After 1 October 2009 the s. 36C(1) words were re-enacted in the same terms by s. 51 of the Companies Act 2006.

Recent case law

The High Court case of Royal Mail Estates Limited v Maple Teesdale Borzou Chaharsough Shirazi has recently had to deal with interpreting a contrary agreement. In the case, Kensington Gateway Holdings Ltd (the “Company”) purported to enter into a contract with Royal Mail Estates Limited (“Royal Mail”) for the sale and purchase of property. Under the contract Royal Mail agreed to sell property for £20 million. The “Buyer” was defined in the contract as being the Company.

The contract included various restrictions on assignment, including a clause making the benefit of the contract personal to the Buyer (i.e. the Company). The contract was signed “for and on behalf of the Buyer” with the signature “Maples Teesdale pp Buyer”.

However, unbeknown to both Royal Mail and Maple Teesdale (a firm of solicitors), the Company had not yet been incorporated and did not exist at the time.

Royal Mail subsequently sought to enforce the contract against the signatory, Maple Teesdale, alleging that Maple Teesdale were liable as a result of the application of s. 36C(1) of the Companies Act 1985.

Maple Teesdale applied for summary judgment as it thought Royal Mail’s claim was bound to fail, for Maple Teesdale were not a party to the contract. The defendants argued that the wording “the benefit of this contract is personal to the Buyer” amounted to a contrary agreement for the purpose of s. 36C(1).

Conclusion – always make explicit reference

The Court dismissed the application and held in favour of Royal Mail, deciding that in order to form a contrary agreement under s. 36C(1), the wording of the relevant clause must objectively mean that “the parties intended that the contract would not take effect as one made with the agent.”

The Court could not derive that the parties intended to exclude the effect of s. 36C(1) from the words “the benefit of this Contract is personal to the Buyer”. The Court’s restrictive approach is a warning for contracting companies yet to be incorporated. Should the agents of companies yet to be incorporated want to absolve themselves from personal liability, they should consider explicitly referring to s. 36C(1).