In its ruling of November 29, 2023, pourvoi n° 22-21.623, the Court of Cassation, Commercial Division, was called upon to rule on a dispute concerning the execution of a promise to sell shares in a company operating a hotel residence. Mr. P., the seller, had granted this promise to Holding BSP, represented by its manager, Mr. B., in a deed signed on September 10 and 11, 2018 and amended on September 24, 2018.
However, at the time of the promise, Holding BSP was not yet registered, and therefore did not yet have legal personality, a situation which, according to Mr. P., should render the deed null and void.
The seller refused to sign the deed of sale
Holding BSP having been registered on October 1, 2018, the seller refused to sign the reiterative deed, leading the company to take legal action to force the execution of the promise to sell. The Papeete Court of Appeal upheld the validity of the deed, despite the absence of any explicit mention that Mr. B. was acting “in the name of” or “on behalf of” the company in formation.
Only deeds expressly concluded in the name of or on behalf of a company in formation can be taken over by the latter after its registration.
The French Supreme Court has reiterated the principle that only deeds expressly entered into in the name of or on behalf of a company in formation may be taken over by the latter after its registration, failing which the deed is absolutely null and void. This principle, designed to ensure legal certainty, means that the absence of a legal personality at the time the deed is concluded in principle prevents its validity.
However, the Cour de cassation has qualified this by recognizing the judge’s power to assess the common intention of the parties. In this case, the Court of Appeal found that Mr. P. was fully aware that Mr. B. was acting on behalf of a company in formation. It therefore concluded that the intention of the parties was to conclude the deed on behalf of the future company, which justifies the execution of the promise despite the inappropriate wording.
The promise to transfer shares must be executed
The Cour de cassation dismissed the appeal, upholding the decision of the Cour d’appel, which had ordered the execution of the promise to sell and ordered Mr. P. to pay costs and damages to the defendants.
Interpreting the validity of commitments made by companies in formation
This ruling illustrates the interpretation of the validity of commitments entered into by companies in formation, where the judge can sovereignly assess the intentions of the parties, even in the absence of precise wording, as long as it is clear that the deed is entered into on behalf of the company in the process of being registered.
Full text:
JUDGMENT OF THE COUR DE CASSATION, CHAMBRE COMMERCIALE, FINANCIÈRE ET ÉCONOMIQUE, DATED NOVEMBER 29, 2023
Mr [V] [P], domiciled at [Address 4], lodged appeal no. G 22-21.623 against the judgment handed down on September 8, 2022 by the Papeete Court of Appeal (Commercial Division), in the dispute between :
1°/ Holding BSP, a one-man limited liability company with its registered office at [Address 3],
2°/ Mr [T] [B], domiciled at [Address 1],
3°/ to the company Off ice notarial Dubouch-[Y], a sole proprietorship with limited liability, with registered office at [Address 2],
defendants to the appeal.
In support of his appeal, the plaintiff puts forward a plea in cassation.
The case has been referred to the Public Prosecutor.
On the report of Mr. Ponsot, counsel, the observations of SCP Alain Bénabent, counsel for Mr. [P], of Mr. Bertrand, counsel for Holding BSP and Mr. [B], of SARL Boré, Salve de Bruneton et Mégret, counsel for Off ice notarialDubouch-[Y], and the opinion of Mr. Lecaroz, avocat général, after debates at the public hearing of October 10, 2023 in which were present Mr. Vigneau, president, Mr. Vigneau, Mr. Salve de Bruneton and Mr. Mégret, counsel for Off ice notarialDubouch-[Y], and the opinion of Mr. Lecaroz, avocat général. Vigneau, President, M. Ponsot, Conseiller rapporteur, M. Mollard, Conseiller doyen, Mmes Graff-Daudret,Daubigney, Fèvre, Ducloz, MM. Alt, Calloch, Mmes Schmidt, Sabotier, conseillers, MM. Blanc, Le Masne de Chermont, MmesVigneras, Lefeuvre, Tostain, M. Maigret, conseillers référendaires, M. Lecaroz, avocat général, and Mme Fornarelli, greffier de chambre,
the commercial, financial and economic chamber of the Cour de cassation, composed, pursuant to article R. 431-5 of the code de l’organisation judiciaire, of the aforementioned president and councillors, having deliberated in accordance with the law, has given the following judgment;
Facts and procedure
1. According to the judgment under appeal (Papeete, September 8, 2022), by a private deed dated September 10 and 11, 2018, extended by an amendment dated September 24, 2018, Mr. [P] granted the limited liability company Holding BSP (the company Holding BSP) “represented by its manager, Mr. [T] [B]” a promise to sell shares in the company Hôtel Lapirogue API, operating a hotel residence located on an islet in Polynesia.
2. Holding BSP was incorporated on August 24, 2018, with Mr. [B] as manager and Holding BSP, a simplified joint-stock company wholly owned by Mr. [B], as sole shareholder. It was registered with the Trade and Companies Registry on October 1, 2018.
3. On March 18, 2019, Mr. [P]’s counsel sent a letter to the notary responsible for drawing up the deed of transfer, Mr. [Y], expressing his client’s refusal to sign the reiterative deed.
4. As the deed of sale had not been signed, Holding BSP, after unsuccessfully putting Mr. [P] on notice to perform, filed a petition with the Mixed Commercial Court on April 30, 2019, seeking an order for the forced execution of the promise to sell the shares.
Examination of the plea
Statement of the plea
5. Mr. [P] complains that the judgment orders the execution of the promise to sell shares, on the grounds that “a deed concluded by a company in the process of being registered, and therefore without legal personality, is null and void on the grounds of absolute nullity, and cannot be confirmed or ratified; in rejecting the request for nullity of the sale agreement concluded between Mr. [P] and the company Holding BSP on September 10 and 11, 2018, and amended by way of an amendment on September 24, 2018, on the grounds that the company Holding BSP was not a legal entity and that it had no legal personality, the judgment states that ‘a deed concluded by a company in the process of being registered, and therefore without legal personality, is null and void on the grounds of absolute nullity, and cannot be confirmed or ratified’.
13/11/2024 10:16 Cour de cassation, civile, Chambre commerciale, 29 novembre 2023, 22-21.623, Publié au bulletin – Légifrance
Holding BSP ‘was registered on October 1, 2018’, i.e. subsequent to the conclusion of these deeds, on the grounds that ‘the improper wording of these deeds as to the quality of the assignee is therefore without prejudice in view of the knowledge that [V] [P] had that [T] [B] was acting on behalf of a company in formation and not in the name of the latter’, the Court of Appeal ruled by improper reasoning and violated articles L. 210-6 of the French Commercial Code and 1842 of the French Civil Code.”
The Court’s response
6. It follows from articles L. 210-6 and R. 210-6 of the French Commercial Code that commercial companies have legal personality from the date of their registration in the Trade and Companies Register. Persons who have acted in the name of or on behalf of a company in formation before it has acquired legal personality are held jointly and severally and indefinitely liable for acts performed in this way, unless the company, after having been duly constituted and registered, takes over the commitments entered into. These commitments are then deemed to have been entered into by the company from the outset.
7. For many years, the Cour de cassation has ruled that only commitments expressly entered into “in the name of” (Com., May 22, 2001, pourvoi n° 98-19.742; Com., February 21, 2012, pourvoi n° 10-27.630, Bull. 2012, IV, n° 49; Com., November 13, 2013, pourvoi n° 12-26.158) or “on behalf of” (Com., June 11, 2013, pourvoi n° 11-27.356; Com, March 10, 2021, pourvoi n° 19-15.618) of the company in formation, and that acts performed “by” the company are void, even if it is clear from the particulars of the act or the circumstances that the intention of the parties was that the act be performed in its name or on its behalf (3rd Civ, October 5, 2011, pourvoi n° 09-72.855 ; Com., February 21, 2012, pourvoi n° 10-27.630, Bull. 2012, IV, n° 49 ; Com., January 19, 2022, pourvoi n° 20-13.719).
8. This jurisprudence is based on the derogatory nature of the system introduced by law, which allows legal acts entered into by a company to be deemed to have been entered into prior to its registration. It is intended to ensure legal certainty, since the presence of an express statement that the act is performed “in the name of” or “on behalf of” a company in formation protects the third-party contracting party, by drawing his attention to the possibility, in the future, on the other, the person performing the act “in the name of” or “on behalf of” the company, by making him/her aware that he/she is committing him/herself personally and will remain liable if the company does not honour the commitments thus entered into.
9. The consequence of this solution is that a deed not expressly subscribed “in the name of” or “on behalf of” a company in formation is null and void, and that neither the company nor the person intending to act on its behalf will be answerable for its execution, unlike a valid deed, but not taken over by the company, which binds the persons having acted “in the name of” or “on behalf of” it. Paradoxically, it has the effect of weakening companies when they are starting up under corporate form, rather than protecting them, without always providing adequate protection for third-party co-contractors who, in the event of annulment of the deed, find themselves without any debtor.
10. Since the requirement that the deed must expressly state that it is executed “in the name of” or “on behalf of” the company in formation, on pain of nullity, is not explicitly stated in the texts governing the fate of deeds executed during the formation period, it seems possible and desirable to give the judge the power to make a sovereign assessment, 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 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.
11. In the present case, after noting that the deed of September 10 and 11, 2018 had been signed by Mr. [B] in his capacity as manager of Holding BSP, a company in the process of being registered with the Trade and Companies Registry, the judgment notes that it is clear from the correspondence produced, the content of which is not disputed, that Mr. [P] was clearly informed, before signing the deed and its amendment, that Mr. [B] was acting on behalf of a company in formation.
12. In the light of these findings, the Court of Appeal exercised its sovereign discretion in finding that, despite the improper wording of these deeds with regard to the designation of the assignee, the parties’ common intention 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, and ordered the execution of the disputed promise.
13. The plea is therefore unfounded.
FOR THESE REASONS, the Court :
DISMISSES the appeal;
13/11/2024 10:16 Cour de cassation, civile, Chambre commerciale, 29 novembre 2023, 22-21.623, Publié au bulletin – Légifrance
Order Mr. [P] to pay the costs;
Pursuant to article 700 of the French Code of Civil Procedure, rejects Mr. [P]’s claim and orders him to pay the single-member limited liability company Holding BSP and Mr. [B] the total sum of 3,000 euros and the companyOff ice notarial Dubouch-[Y] the sum of 3,000 euros.
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