Acts performed in the name of or on behalf of companies in formation […].

Acts performed in the name or on behalf of companies in formation: extension of judges’ discretionary powers –Cass.Com., November 29, 2023, n°22-12-865

 

In a ruling handed down on November 29, 2023 (Cass.Com., November 29, 2023, n°22-12-865), the French Supreme Court (Cour de cassation) relaxed its case law on acts performed in the name or on behalf of companies in formation.

By way of introduction, it should be noted that a company in the process of formation is understood to mean any company not registered with the Registre du Commerce et des Sociétés, whose formalities relating to its creation are in the process of being completed. In other words, these companies are in an “intermediate” period, during which they have not yet acquired legal personality, but their future partners have already planned their incorporation.

Although the company has no existence of its own during this period, the associates are required to perform various acts necessary for the exercise of its future activity. As a result, these acts are referred to as being performed “in the name of” and/or “on behalf of” the company.

 

Acts performed in the name of or on behalf of companies in the process of formation are governed mainly by article 1843 of the French Civil Code, and articles L.210-6 and R.210-6 of the French Commercial Code.

It follows from these provisions that the person acting on behalf of the company during its formation is bound by the commitments entered into, unless the company takes them over after its registration.

Case law has added an additional requirement for the company to take over the deeds. Indeed, it is settled case law that a registered company can only take over acts performed while it is in the process of formation, provided that they bear a written statement to the effect that the future partner(s) are acting “in the name of” or “on behalf of” the company in formation..

In the presence of this indication, the person acting in place of the company, or the company itself in the event of a takeover of the deed, would be definitively committed.

In the absence of precision, the nullity of the deed on the grounds of incapacity was incurred since the deed had not been subscribed in the name of a company in formation, but by the company itself which, not being registered in the Trade and Companies Register, lacked the legal personality empowering it to contract.

The nullity affecting a commitment entered into by a person without legal existence is an absolute nullity, which cannot be ratified or confirmed by subsequent acts. Nullity may be requested by any person with an interest in the matter, including the company’s partners, the signatories to the deed, the company’s representative, and so on.

This jurisprudential requirement of compulsory mention thus had a dual function:

The first was to ensure that the parties involved were fully informed so that they could express their consent in a free and informed manner:

On the one hand, the company’s representative, acting in his own name or on his own behalf, was fully aware that he would incur liability if the company failed to take over the deed.

On the other hand, the third-party co-contractor was informed of the possibility of taking action, in the cases provided for by law, against either the natural person or the legal entity once incorporated.

The second was to avoid the nullity of the deed due to the company’s lack of legal capacity at the time it was signed.

Beyond these functions, the aim is to ensure the legal security of transactions.

In the event of a dispute concerning the deed, the judge would check only whether or not the mention was present in the deed, on pain of being penalized for distorting the content of the deed.

This express mention requirement no longer seems efficient when the Cour de cassation now invites the judges of the court of first instance to make a genuine assessment of all the circumstances of the case, in order to determine whether or not it was the common intention of the parties that the deed should be carried out on behalf of the company in formation.

 

To understand the Cour de cassation’s response, the facts of the case need to be briefly recalled. On January 21, 2019, the only two future partners of the BYPA company, registered on July 18, 2019, entered into a lease agreement. Subsequent to the company’s registration, one of the partners brought an action to cancel the lease agreement.

The deed of sale, signed during the company’s formation, included the following detail: ” this transaction is carried out in the name and on behalf of the company being formed in accordance with the provisions of Articles L.210-1 to L.210-9 of the French Commercial Code and those of Decree 67-236 of March 23, 1967 “. However, the deed in question was signed by the partners in their capacity as representatives of the company in the process of incorporation, which could lead to confusion in view of the other particulars.

The Court of Appeal, basing its decision solely on the wording of the deed, had declared the lease contract null and void on the grounds that the future partners had signed the disputed contract as representatives of the company in formation and not in the name of the company.

The Cour de cassation overturned the appeal decision on several grounds:

The requirement that the deed must expressly state that it has been drawn up “in the name of” or “on behalf of” the company in formation, on pain of nullity, does not explicitly result from the texts governing the fate of deeds drawn up during the formation period, it would seem possible and desirable for the judge to be given the power to assess, in a sovereign manner, by examining all the circumstances, both intrinsic to the deed and extrinsic, whether the common intention of the parties was that the deed should be concluded in the name of or on behalf of the company in formation, and that this company could then, after acquiring legal personality, decide to take over the commitments entered into

(…)

In making this decision, without to ascertain whether it was not apparent, not only from the particulars of the deed, but also from the circumstances as a whole, that, notwithstanding faulty drafting, the common intention of Mr. [M] and the company CDV, on the one hand, and Mr. and Mrs. [J], on the other, was that the deed was executed in the name or on behalf of the Bypa company in formation, the Court of Appeal did not provide a legal basis for its decision. “.

In this way, the judge’s review is no longer confined to noting the presence of particulars in the deed, but instead involves a genuine analysis of the facts “extrinsic” to the deed.

The decision to be handed down by the Lyon Court of Appeal, to which the Cour de cassation has referred the parties, will provide us with further details on the indicators to be taken into account to characterize the common intention of the parties.

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