Acts entered into on behalf of a company in formation – case-law overturned
As per French practice, the term “company in formation” refers to companies which, although they have acquired some legal consistency, have not yet been registered. As a result, they do not have legal personality, in other words, they can’t be legal subjects (holders of rights and duties).
In this case, a commercial lease was entered into for the benefit of a company in formation. Its registration in the Commercial and Companies Register had not yet been done.
In principle and according to previous case-law, companies in formation do not have the capacity to conclude acts since they do not (yet) have legal personality. In order for the acts of the company in formation to continue to have effect after the registration, the founders had to comply with a strict documentary formalism: for example, they had to mention in signed paperwork that they were acting “in the name” or “on behalf” of the company in formation.
But in the present case, the founders of the company in formation had not complied with this strict formalism: one of the co-founders who had been expelled from the company and the landlord acted to nullify the lease.
The first Court and then the appellate court had thus accepted the nullity of the lease as a sanction for failure to comply with that strict formalism.
The company then filed a recourse in front of the Court of Cassation, arguing that the absence of the formal requirements was no cause for voiding the lease.
The Court of Cassation set aside the decision of the Court of Appeal, thus reversing previous case-law. The Court of Cassation now took the view that it was no longer necessary to limit legal analysis to formal documentary requirements in order to assess the validity of the contract, but rather to interpret the common intention of the parties (in other words, whether or not the act was concluded in the name or on behalf of the company in formation).
Thus, the Court of Cassation no longer requires the mention of “in the name” or “on behalf” in an early document signed before registration of the company, in order for the deed to remain valid once the company has been formed. It therefore favours a search for the intention of the parties rather than confining to the presence of certain references in paperwork in order to assess the validity of the contract. This means, therefore, that the courts are now given a margin of discretion to assess the validity of contracts concluded on behalf of companies before their registration, even if there is no formalism.
A. PEDROT and G. APOSTOL
Reference
Fr. Court of Cassation, Commercial Division, 29 Nov. 2023, Case No. 22-12.865, Released for official publication.
Source: Légifrance