Black v Smallwood

It was subsequently found that Western Suburbs Holdings Pty. Limited had not at that time been incorporated but it is common ground that both the appellants and the respondents, Smallwood and Cooper, who subscribed the name Western Suburbs Holdings Pty. Limited to the form of contract and added their own signatures as directors, believed that it had been and that the latter were directors of the company. Thereafter the appellants instituted a suit for specific performance against the respondents alleging that by a written contract made between the appellants as vendors and the respondents who "described themselves therein as "Western Suburbs Holdings Pty. Limited" " agreed to purchase the subject land from the appellants. No attempt was made at the trial to make this allegation good but, without amendment, the case proceeded as one in which the appellants sought to impose a liability in accordance with the terms of the contract upon the respondents as agents contracting on behalf of a principal not yet in existence.

Upon the trial the appellants were successful in obtaining a decree for specific performance but on appeal to the Full Court the decree was set aside and the suit dismissed. All members of the Full Court thought the case was covered precisely by the decision of the Court of Appeal in Newborne v. Sensolid (Great Britain) Ltd. [1] and although one of their number was, perhaps, more than disposed to doubt the correctness of that decision, the Court as a whole decided that it should be followed. It is from this decision that this appeal is brought. At the outset of the case we should say that the decision in Newborne's Case [1] is directly in point but we propose to deal briefly with the arguments that were presented to us and which, if they were accepted, would establish that decision to be wrong.

The argument of the appellants was put in two ways. First of all it was said that the contract was, in fact, one entered into by the respondents on behalf of a company to be formed and that this involved them in a personal obligation to fulfil the terms of the contract upon the principle of Kelner v. Baxter [1] . Alternatively, it was asserted that it was a principle of the common law prior to the cases of Jenkins v. Hutchinson [2] and Lewis v. Nicholson [3] that when a person purported, without authority, to enter into a contract as agent with another person he was personally liable on the contract. It was acknowledged that this rule, if, indeed, any such rule ever existed, had been displaced by the two cases referred to but it was asserted that it was displaced only in cases where a person had purported to act on behalf of another existing person whose authority he lacked and that the rule has never been displaced in cases where an agent purports to act for a non-existent principal. If this latter contention be correct the case of Kelner v. Baxter [1] might simply have been decided in conformity with it. But, as will appear, it was not and an examination of the contention may be left until consideration has been given to the decision in that case.

1. (1866) L.R. 2 C.P. 174. 2. (1849) 13 Q.B. 744 [116 E.R. 1448]. 3. (1852) 18 Q.B. 503 [118 E.R. 190]. 4. (1866) L.R. 2 C.P. 174.

Kelner v. Baxter [1] was cited as an authority for the proposition that there is a rule of law to the effect that where a person contracts on behalf of a non-existent principal he is himself liable on the contract. But we find it impossible to extract any such proposition from the decision. In that case it appeared from the contract itself that the defendants had no principal; they had purported to enter into a contract on behalf of the "proposed Gravesend Royal Alexandra Hotel Company", and the fact that they had no principal was obvious to both parties. But it was not by reason of this fact alone that the defendants were held to be liable; the Court proceeded to examine the written instrument in order to see if, in these circumstances, an intention should be imputed to the defendants to bind themselves personally, or, perhaps, to put it in another way, whether, the intention being sufficiently clear that a binding contract was intended, there was anything in the writing inconsistent with the conclusion that the defendants should be bound personally. The decision was that, in the circumstances, the writing disclosed an intention that the defendants should be bound. As Erle C.J. said: "It cannot be supposed that the payment was to be contingent on the formation of the company by the 28th of February. The paper expresses in terms a contract to buy. And it is a cardinal rule that no oral evidence shall be admitted to show an intention different from that which appears on the face of the writing. I come, therefore, to the conclusion that the defendants, having no principal who was bound originally, or who could become so by a subsequent ratification, were themselves bound, and that the oral evidence offered is not admissible to contradict the written contract" [1] . Willes J. agreed and added: "Both upon principle and upon authority, therefore, it seems to me that the company never could be liable upon this contract: and, as was put by my Lord, construing this document ut res magis valeat quam pereat, we must assume that the parties contemplated that the persons signing it would be personally liable. Putting in the words, "on behalf of the Gravesend Royal Alexandra Hotel Company", would operate no more than if a person should contract for a quantity of corn "on behalf of my horses" " [1] . Byles J. also agreed and added: "The true rule, however, is that stated by Mr. Thesiger, viz. that persons who contract as agents are generally personally responsible where there is no other person who is responsible as principal" [1] . Understood literally this last proposition is, for reasons which will appear later, too wide but, nevertheless, it does not state as a proposition of law that a person purporting to contract on behalf of a non-existent principal is personally liable on the contract; the word "generally" acknowledges that there are cases where he will not be bound. We should add that we fully agree with the observations of Fullagar J. in Summergreene v. Parker [1] concerning the basis of the decision in Kelner v. Baxter [2] . He said: "I do not myself think that Kelner v. Baxter [2] or any of the cases cited affords any assistance in the present case. Where A, purporting to act as agent for a non-existent principal, purports to make a binding contract with B, and the circumstances are such that B would suppose that a binding contract had been made, there must be a strong presumption that A has meant to bind himself personally. Where, as in Kelner v. Baxter [2] , the consideration on B's part has been fully executed in reliance on the existence of a contract binding on somebody, the presumption could, I should imagine, only be rebutted in very exceptional circumstances. But the fundamental question in every case must be what the parties intended or must be fairly understood to have intended. If they have expressed themselves in writing, the writing must be construed by the court. If they have expressed themselves orally, the effect of what they have said is a question of fact - a question for the jury, if there is a jury" [3] .

1. (1866) L.R. 2 C.P. 174. 2. (1866) L.R. 2 C.P., at pp. 183, 184. 3. (1866) L.R. 2 C.P., at p. 185. 4. (1866) L.R. 2 C.P., at p. 185. 5. (1950) 80 C.L.R. 304. 6. (1866) L.R. 2 C.P. 174. 7. (1866) L.R. 2 C.P. 174. 8. (1866) L.R. 2 C.P. 174. 9. (1950) 80 C.L.R., at pp. 323, 324.

In dealing with the appellants' second contention we shall endeavour to express briefly the reason why we think the common law never recognized such an absolute rule, such as is suggested. Indeed, the decision in Jenkins v. Hutchinson [4] , we think, tends to show this to be so for in that case the Court concluded that: " In the absence of any direct authority that a party who executes an instrument in the name of another, whose name he puts to the instrument and adds his own name only as agent for that other, cannot be treated as a party to that instrument and be sued upon it, unless it be shewn that he was the real principal" [1] . To the like effect is the decision in Lewis v. Nicholson [1] where the members of the Court referred to an observation of Bayley B. in a note to the case of Thomas v. Hewes [2] to the effect "that, where an agent makes a contract in the name of his principal, and it turns out that the principal is not liable for the want of authority in the agent to make such contract, the agent is personally liable on the contract" [3] . But this "doctrine" was expressly rejected in Lewis v. Nicholson [1] , Wightman J. observing that "There is no case in banc in our Courts in which such has been the decision" [4] . Lord Campbell C.J. illustrated the absurdity of the proposition by observing "that, if A., professing to have but not having authority from B., made a contract that B. should marry C., C. might sue A. for breach of promise of marriage, even though they were of the same sex" [5] . Many other illustrations may be given but it is sufficient to add to that given by Lord Campbell C.J. a contract for personal services made by a person who, without authority, professes to act on behalf of another. We can, for instance, imagine the embarrassment of a theatrical agent who, purporting to contract, though without authority, on behalf of a prima donna for a season at Covent Garden being told that he is personally liable to fulfil the contract. We pass over intervening cases and come to Collen v. Wright [6] in which Cockburn C.J. delivered a judgment dissenting from five other members of the Court. The case was not one in which the plaintiff sought to hold a person who had expressly contracted as agent for another, though without authority, liable upon the contract but was one in which it was sought to make him liable for breach of warranty of authority. The majority held that he was liable but Cockburn C.J. in a vigorous dissenting judgment expressed the view that the common law did not recognize an action against an agent for such a cause of action. There had never been the occasion for such an action because "The doctrine that a person professing to act as agent without sufficient authority might be made responsible as principal was only subverted at a comparatively recent period" [7] . This was, of course, a reference to the decisions in Jenkins v. Hutchinson [1] and Lewis v. Nicholson [1] and to establish a liability for breach of warranty of authority on the part of an agent would be to create "a new law instead of expounding that which already exists" [2] . In the course of showing that the old so-called doctrine had been subverted Lord Cockburn C.J. referred to Story on Agency, 4th ed., the notes to Thomson v. Davenport in Smith's Leading Cases, to an earlier decision in Jones v. Downman [3] and to the observation of Bayley B. in Thomas v. Hewes [4] to which we have previously referred. In Jones v. Downman [3] consideration was given to the question of the liability of a person who had purported on behalf of a principal, though without authority, to enter into an engagement with another and the point was resolved by reference to a passage in Story on Agency. It was said that the principle was clearly stated by Story J. in his Commentaries on the Law of Agency, 4th ed., that "wherever a party undertakes to do any act, as the agent of another, if he does not possess any authority from the principal (therefor), or if he exceeds the authority delegated to him, he will be personally responsible therefor to the person with whom he is dealing for or on account of his principal". The Court added that "This doctrine is supported by numerous authorities, and is founded on plain justice. One qualification indeed, which the learned author almost immediately subjoins, it is right to make on this doctrine, that the want of authority must be unknown to the other party" [5] . But the learned author was not suggesting in the passage quoted that the professed agent was liable on the contract; that this was so emerges, quite clearly, from succeeding passages in the 4th edition and he proceeds to say in the next section (264a) that "It seems clear, that in no case can an agent be sued on the very instrument itself, as a contracting party, unless there are apt words therein so to charge him". It seems to us that in Jones v. Downman [3] there was a misapplication of the principles enunciated in Story J.'s work and that this led to the statement in Smith's Leading Cases, 9th ed., vol. 2, p. 411 "That if he state himself to be an agent, but have really no principal, he is, in law, himself the principal unless his want of authority is known to the other party". As authority for this proposition Jones v. Downman [1] is cited and also the case of Smout v. Ilbery [1] . However the latter case is clearly not authority for the proposition advanced.

1. (1849) 13 Q.B. 744 [116 E.R. 1448]. 2. (1849) 13 Q.B., at p. 752 [116 E.R., at p. 1451]. 3. (1852) 18 Q.B. 503 [118 E.R. 190]. 4. (1834) 2 C. & M. 519 [149 E.R. 866]. 5. (1834) 2 C. & M., at p. 530 [149 E.R., at p. 871]. 6. (1852) 18 Q.B. 503 [118 E.R. 190]. 7. (1852) 18 Q.B., at p. 514 [118 E.R., at p. 194]. 8. (1852) 18 Q.B., at p. 511 [118 E.R., at p. 193]. 9. (1857) 8 El. & Bl. 647 [120 E.R. 241]. 10. (1857) 8 El. & Bl., at p. 660 [120 E.R., at p. 246]. 11. (1849) 13 Q.B. 744 [116 E.R. 1448]. 12. (1852) 18 Q.B. 503 [118 E.R. 190]. 13. (1857) 8 El. & Bl., at p. 659 [120 E.R., at p. 245]. 14. (1842) 4 Q.B. 235 [114 E.R. 887 (n.)]. 15. (1834) 2 C. & M. 519 [149 E.R. 866]. 16. (1842) 4 Q.B. 235 [114 E.R. 887 (n.)]. 17. (1842) 4 Q.B., at p. 239 [114 E.R., at pp. 890, 891 (n.)]. 18. (1842) 4 Q.B. 235 [114 E.R. 887 (n.)]. 19. (1842) 4 Q.B. 235 [114 E.R. 887 (n.)]. 20. (1842) 10 M. & W. 1 [152 E.R. 357].

In addition to the sources already mentioned Cockburn C.J. also referred to Paley's treatise on the Law of Principal and Agent, 3rd ed., ch. 6, s. 1, p. 386 where according to his Lordship, "it is laid down, and supported by authorities, that a party contracting as agent is responsible as principal, where there is no responsible principal to resort to, or where he exceeds his authority so that the principal is not bound". It seems to us that the learned author of that work did not lay down any such principle. The passage at the place noted is as follows: "But if an agent so exceed his authority in the contract made by him, that the principal is not bound by it, he becomes himself liable to the person with whom he deals. Thus a broker, who was limited by his commission to the purchase of a particular kind of silk, having contracted on behalf of his principal for the purchase of a different kind, it was held, that his principal was not bound by the contract, but that he was himself liable to the sellers for the loss upon the resale." There is no suggestion in this passage that an agent contracting on behalf of another, though without authority, was liable as principal on the contract and the authorities cited - East India Company v. Hensley [2] ; Fenn v. Harrison [3] - do not support any such proposition. In the first of these cases, the defendant was sued to recover damages for the loss arising from the resale of certain silk which one, Briggs, as broker for the defendant, had engaged to purchase. The defendant was held not liable, Lord Kenyon remarking on the distinction between "a general and special agent". He then proceeded to say "that in the first case the principal must be bound by all his acts, whereas in the latter he is only bound while the agent acts within the scope of his authority; and that if in the present case the defendant could prove that he had so specially authorized Briggs to bid for him for best Bengal silk, and this turned out to be not of that description, that he should not be bound by his contract so made without his authority; but that Briggs should be liable to an action at the suit of the Company for his abuse of it " [4] . This case was not authority for the proposition that an agent contracting on behalf of a principal, though without authority, is liable upon the contract as principal; it is merely authority for the proposition that an agent in such a case is liable in damages for breach of warranty. The observations in the passage referred to in the second case do not, in our view, carry the matter any further. We think it is true to say that it has never been a principle of the law that a person, who, without authority, purports to contract on behalf of another must, in all cases, be taken to have contracted as a principal. Of course, it may be shown that he was the real principal in the transaction Carr v. Jackson [1] , or it may appear that, in the language of Story J., "there are apt words to charge him" in which case he will be liable on the contract. We think we should conclude our reference to the dissenting judgment in Collen v. Wright [1] by referring to the judgment of Lord Lindley in Starkey v. Bank of England [2] when he said: "My Lords, this is the first time I ever heard Collen v. Wright [1] disputed. It is good law, and according to Story J. it was law long before that case. I do not quite understand the observation made by Cockburn C.J. that there was nothing in Story against the view which he took. Whatever may be said of other cases, Collen v. Wright [1] is sound, Firbank's Executors v. Humphreys [3] is sound, and so is this decision" [4] .

1. (1794) 1 Esp. 112 [170 E.R. 296]. 2. (1790) 3 T.R. 757, at p. 761 [100 E.R. 842, at p. 845]. 3. (1794) 1 Esp., at p. 112 [170 E.R., at pp. 296, 297]. 4. (1852) 7 Ex. 382 [155 E.R. 996]. 5. (1857) 8 El. & Bl. 647 [120 E.R. 241]. 6. [1903] A.C. 114. 7. (1857) 8 El. & Bl. 647 [120 E.R. 241]. 8. (1857) 8 El. & Bl. 647 [120 E.R. 241]. 9. (1886) 18 Q.B.D. 54, at p. 60. 10. [1903] A.C., at pp. 119, 120.

However in the present case the respondents did not contract, or purport to contract, on behalf of the non-existent company. They simply subscribed the name of the non-existent company and added their own signatures as directors in the belief that the company had been formed and that they were directors. The fact that their signatures appeared as part of the company's signature did not make them parties to the contract nor could, as was possible in Kelner v. Baxter [5] , an intention to be bound personally be imputed to them. The distinction between a case where the execution of a document by a company is effected by the subscription of the company's name followed by the signature of a director or directors as such and the case where the document is executed by an agent on behalf of a company is well illustrated by the observations made in the report of Richardson v. Landecker [6] . There the point was taken that a lease was inoperative because it had been executed on behalf of a company by an agent and he had not been "thereunto lawfully authorized in writing". The decision was that the lease had not been executed by an agent on behalf of the company; it had been executed by the company by the subscription of its name followed by the signature of a director as such. It is, in our view, clear from the written instrument that the respondents in this case did not enter into any contract; they were not parties to the contract as agents or otherwise and there is no basis upon which they can be held liable upon it.

1. (1866) L.R. 2 C.P. 174. 2. (1950) 50 S.R. (N.S.W.) 250, at p. 259; 67 W.N. 149, at pp. 153, 154.

These reasons lead us to the respectful conclusion, not only that we should follow the decision in Newborne v. Sensolid (Great Britain) Ltd. [1] , but also that the decision in that case was correct. We would dismiss the appeal.

I agree that this appeal must be dismissed. I have come to that conclusion without hesitation but with regret. The law requires it, but I do not think that it accords well with a belief that bargains should be kept.

If before the document sued upon was signed the registration of Western Suburbs Holdings Pty. Limited had been completed and it had emerged from the Registrar-General's office as a new-born entity in the law, no difficulty could have arisen. It could not then have been said that Smallwood and Cooper had contracted as agents on its behalf. It must have been said that it, not they, had made the contract. It, not they, would have been the purchaser entitled to a conveyance. Their putting the company's name to the document would have been purely in execution of its corporate act and their added signatures would have no more bound them personally to perform the contract than would the signatures of the directors or secretary of a company authenticating the affixing of its seal. There is a difference between a man's own acts and acts done for him by another man. The difficulty of the distinction in the case of a corporation is that a corporation must manifest its acts and intentions by the actions and declarations of human beings: and ambiguities and limitations of language make it difficult sometimes to express the distinction between acts done by a person as executant of the will of a corporation and acts done by a person as agent for a corporation, his principal. That the word "agent" is in each case apt to describe the actor helps to disguise their different legal characters.

I appreciate the force of what Walsh J. said in the Supreme Court concerning the narrow differences in language upon which the decision in Newborne v. Sensolid (Great Britain) Ltd. [1] turned. But the distinction that differences in language reflect, sometimes not very clearly, is the distinction between the act of a man himself and acts done by another on his behalf. If in the case of a company the distinction is difficult to preserve, and may seem unreal, or merely verbal not conceptual, that is because the legal personality and capacity of the corporation are artificially created by law. Sometimes the result may be to allow a man to escape from an unprofitable bargain by a pure technicality, as has been said of Newborne's Case [1] : Treitel, Law of Contract (1962). In many cases courts have had to decide whether an agent had, in the particular case, incurred a personal liability on a contract in writing made by him on behalf of a principal. And these decisions have sometimes turned upon narrow differences in wording, which seem to be the progeny by miscegenation of early technical rules relating to the form of the execution of deeds to which Doctor Stoljar has referred in his work, The Law of Agency (1961), pp. 251-255. But here that question does not really arise, for the document which the respondents signed does not purport to be a contract made by them as agents for the supposed company. They thought that the company existed and that they were in fact directors. It is therefore impossible to regard them as having used the name of the company as a mere pseudonym or firm name or as having intended to incur a personal liability. The reason for the formation of the company may have been to ensure that they would not be personally liable. It is however suggested that, notwithstanding the form of the document, a personal obligation to perform the contract has been imposed upon them by law, because at the time they inserted the name of the company as purchaser there was no such company in existence.

So far as this proposition is based upon Kelner v. Baxter [1] , it must fail. The facts of this case differ essentially from the facts of that. Some statements in textbooks and in judgments that abbreviate the effect of that decision can be at least misleading, unless they be read with the facts well in mind. For example, Latham C.J. said that there "the intention was evident that the proposed company and not the persons purporting to act as agents should be the contracting parties, and yet the court found no difficulty in substituting the agents for the supposed principal as the contracting party": Summergreene v. Parker [2] . But it is wrong to read this as meaning that whenever a person contracts professedly on behalf of a principal not yet in existence or already gone out of existence, the so-called agent is "substituted" as the contracting party and becomes personally liable to perform the contract or pay damages for non-performance. Doubtless in Kelner v. Baxter [1] both the plaintiff and the defendants expected that payment for the goods would be made from the funds of the company that was in process of being formed. That, however, was not a term of the contract. And when the goods were bought it was well-known to all concerned that the company had not yet been formed. The plaintiff, in his letter to the defendants offering to supply the goods, had referred to it as the "proposed" company; and, as Asprey J. has pointed out, the more ample report of the case in the Law Journal [1] shews that the plaintiff was himself a participant in the project. The defendants were in fact the buyers of the goods. Their statement that they were buying on behalf of the proposed company was taken to mean, and could in the circumstances only mean, that they contracted to buy the goods with the intent and to the end that the company when formed might have the benefit of them. The words "on behalf of" do not necessarily imply agency in the relevant legal sense, any more than does the word "for" when a man says "I am buying this for" someone whom he names. The words cannot be regarded as indicative of agency for a principal when it is known to the user of the words that there is no principal in existence. The defendants in Kelner v. Baxter [1] therefore contracted as principals. They were not substituted as principals. They were the principals. The contrast with this case is obvious. Here, instead of both parties knowing that the company was not in existence, they both, appellants and respondents, thought that it was.

1. (1866) L.R. 2 C.P. 174. 2. (1950) 80 C.L.R. 304, at p. 314. 3. (1866) L.R. 2 C.P. 174. 4. (1866) 36 L.J. C.P. 94. 5. (1866) L.R. 2 C.P. 174.

However, counsel for the appellants contended that the respondents could nevertheless be liable to perform the contract as purchasers on the basis of a supposed rule that a person who contracts, professedly as agent, for a non-existent principal is always personally liable on the contract: and he contended that the respondents signed the contract as agents, and therefore they could be compelled to perform it, it being a type of contract specifically enforceable in equity. In my view neither the major nor the minor premiss of the argument can be accepted. The minor premiss, that the respondents contracted as agents, I have dealt with above and rejected.

The major premiss, the supposed general rule, cannot I consider be supported. Counsel sought to extract it from statements in judgments in cases decided before Collen v. Wright [2] . That decision, he argued, only displaced earlier doctrine to a limited extent and left intact a general proposition that an agent for a non-existent principal is personally liable on the contract. There are, I am aware, some statements since Collen v. Wright [1] that such is the rule: see, for example, In re Equitable Insurance Association of New Zealand; Bailie's Case [1] . And support can be found for it in some American jurisdictions: see Hagan v. Candler [2] and the annotation to the report of that case. Questions such as are now before us have frequently arisen in America. The answer has in some jurisdictions been supplied by legislation; in others by the adoption of a rule that "organizers of a corporation who transact business in the corporate name before its organization has been completed will be deemed partners operating under the corporate name as a trade-name" [3] ; sometimes by treating the person who contracts as agent for or in the name of a projected corporation as himself liable on the contract. But we have no such rule. The error in its supposed derivation has been exposed by the other members of the Court in their judgment which I have had the advantage of reading. I entirely agree in what they have said. It would, I think, be contrary to now-established principle to hold a man personally liable on a contract when he did not intend personally to contract, and when, the transaction being in writing, the writing could not upon its true construction, when read in the light of what both parties took to be the facts, mean that he had done so. The purported contract in this case was a nullity, for the supposed purchaser did not exist when it was made. The suit for specific performance therefore must fail.

1. (1857) 7 El. & Bl. 301 [119 E.R. 1259]; 8 El. & Bl. 647 [120 E.R. 241]. 2. (1857) 7 El. & Bl. 301 [119 E.R. 1259]; 8 El. & Bl. 647 [120 E.R. 241]. 3. (1892) 11 N.Z.L.R. 454. 4. (1939) 126 Am.L.R. 108. 5. (1939) 126 Am.L.R., at p. 112.

We do not have to consider whether the respondents might have been held liable to the appellants in proceedings of a different kind. I would merely say on the facts appearing from the transcript, the appellants might it would seem have a cause of action in the nature of an action for breach of warranty of authority - that is on an implied warranty that they were directors of an existing company which had power to make a contract to purchase land. The principle of Collen v. Wright [1] is of very general application: Starkey v. Bank of England [4] ; British Russian Gazette, etc., Ltd. v. Associated Newspapers Ltd.; Talbot v. Associated Newspapers Ltd. [5] : and see especially Yonge v. Toynbee [6] , which, whether or not an extension of earlier doctrine (as to which see Columbia Law Review 10(1910 p. 567), must I respectfully think be taken as correctly stating the law: see too Brownett v. Newton [1] . However, the question does not arise for us in these proceedings and I do not express any concluded opinion on it.

1. (1857) 7 El. & Bl. 301 [119 E.R. 1259]; 8 El. & Bl. 647 [120 E.R. 241]. 2. [1903] A.C. 114. 3. [1933] 2 K.B. 616, at p. 642. 4. [1910] 1 K.B. 215. 5. (1941) 64 C.L.R. 439.

I have nothing further to add to what has been said by the other members of the Court and by the learned members of the Full Court of the Supreme Court who considered the case fully.