Company Law - Formation Cases Flashcards
Twycross v Grant
‘One who undertakes to form a company with reference to a given project and to get it going, and who takes the necessary steps to accomplish that purpose.’
Whaley Bridge Callico Printing Co v Green
‘The term ‘promoter’ is a term not of law, but of business, usefully summing up in a single word a number of business operations familiar to the commercial world by which a company is generally brought into existence.’
Kelner v Baxter
A, B and C entered into a contract with the claimant to purchase goods on behalf of the proposed Gravesend Royal Alexandra Hotel Co. The goods were supplied and used in the business. Shortly after incorporation the company collapsed.
It was held that as the company was not in existence when the contract was made it was not bound by the contract and could not be sued for the price of the goods. Neither could it ratify the contract
Tinnevelly Sugar Refining Co Ltd and Others v Mirrlees, Watson and Yaryan Co Ltd
Two men bought machinery from Mirrlees Watson saying they were acting on behalf of Tinnevelly but the company was in fact not formed until 2 weeks later. The machinery supplied was defective and Tinnevelly attempted to sue on the basis of the defects.
It was held that Tinnevelly had no rights under the original agreement and had no locus to subsequently ratify the actions of the two men who were acting as promoters
Phonogram Ltd v Lane
In negotiations for the financing of a new pop group by the plaintiffs the parties contemplated the formation of a company to manage the group which would enter into a recording contract with the plaintiffs. Under an agreement signed by the defendant “for and on behalf of” the proposed company an advance payment made by the plaintiffs was to be returnable in the event of the recording contract not being entered into within one month. The proposed company was never formed and no recording contract was ever entered into.
In an action by the plaintiffs for the return of the sum advanced, the judge held that the defendant was personally liable under the agreement by virtue of section 9 (2) of the European Communities Act 1972 1 as a “person purporting to act for” a company or “as agent for a company, at a time when the company has not been formed.”
Hickman v Kent or Romney Marsh Sheepbreeders Association
The company’s articles included a clause to the effect that all disputes between the company and its members were to be referred to arbitration. A member brought a court action against the company. It was held that the proceedings were stopped. The company could enforce the arbitration clause against the member
Rayfield v Hands
The articles required the directors to be members ie to hold qualifying shares and to purchase shares from any member who wishes to sell.
It was held that this was enforceable against the directors in their capacity as members
Eley v Positive Government Security Life Assurance Co
The articles stated that Eley should be appointed as the company’s solicitor for life.
It was held that this was not a right given to him as a member and he could not rely on the articles to give him the position for professional services
Sidebottom v Kershaw, Leese and Co
The company altered its articles to compel a director to require any member carrying out a competing business to sell his shares to one nominated by the director. The minority against whom this was aimed challenged the validity of the alteration as an abuse of the majority’s power to expel a minority.
It was held that as the expulsion was for the loss the company would suffer by these actions it was for the benefit of the company as a whole and thus valid
Citco Banking Corporation NV v Pussers Ltd
Lord Hoffman – the primary test of validity of an amendment of a company’s articles is the benefit of the company test
Southern Foundries Ltd v Shirlaw
Following a merger the members of a group of companies agreed to change their articles regarding directors. The group then had the power to remove a director and that a managing director should cease to hold office if he ceased to be a director. S was removed as a director so could no longer be MD. His contract of employment still had time to run.
It was held that the company could not be prevented from altering its articles but that the only remedy for an alteration which caused a breach of contract was damages. The MD was therefore entitled to damages due to the breach of his employment contract
