Quah Poh Hoe Peter v Probo Pacific Leasing Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 07 November 1992
• Date: 07 November 1992
• Docket Number: Civil Appeal No 32 of 1992
• Court: Court of Appeal (Singapore)

Quah Poh Hoe Peter

Plaintiff

and

Probo Pacific Leasing Pte Ltd

Defendant

[1992] SGCA 76

F A Chua J

,

Chao Hick Tin J

and

Goh Phai Cheng JC

Civil Appeal No 32 of 1992

Court of Appeal

Companies–Promoters–Liability–Pre-incorporation contract–Lease agreement entered into by agent on behalf of company prior to incorporation–Company not incorporated–Whether agent personally bound–Sections 41 (1) and 41 (2) Companies Act (Cap 50, 1990 Rev Ed)–Contract–Misrepresentation–Inducement–Lease agreement entered into by agent on behalf of company prior to incorporation–Company not incorporated–Whether lessor relied on alleged misrepresentation that company existed–Whether agent liable–Credit and Security–Guarantees and indemnities–Co-guarantors–Whether co-guarantor liable under guarantee for sums due to be paid by other co-guarantor in personal capacity–Whether estoppel by convention applicable

The respondent (“Probo”) purchased two yachts and leased them under separate leases to a company (“CMCS”). The two leases were signed by one Brattain for and on behalf of CMCS. The appellant was interested in investing in CMCS and was brought into the transaction by Brattain. The appellant and Brattain also signed a guarantee as co-guarantors for all sums payable under the lease for one of the yachts (“the Elke lease”).

CMCS defaulted on rental payments under both leases. Probo subsequently discovered that CMCS had not even been incorporated under the Companies Act (Cap 50, 1990 Rev Ed) (“the Act”). It brought an action against the appellant and Brattain for damages for breach of warranty of authority, negligent misstatement or deceit, and, alternatively, the sums due under the guarantee under the Elke lease. Probo, having obtained interlocutory judgment against Brattain in default of appearance, proceeded with its claim against the appellant. The learned trial judge entered interlocutory judgment against the appellant, with damages to be assessed by the registrar. She held that, in so far as the Elke lease was concerned: (a) the lease was a pre-incorporation contract under s 41 (1) of the Act and Brattain was personally bound by the lease; (b) as Brattain had defaulted under the lease both as principal debtor and as guarantor, the appellant was liable to Probo as guarantor of Brattain's obligation under the lease and also as co-guarantor; (c) the appellant was liable to Probo for breach of warranty of authority and (d) although there had been negligent misrepresentation on the part of the appellant and Brattain, Probo had not discharged the much higher burden of proof required for fraudulent misrepresentation.

The appellant appealed against the trial judge's decision. At the appeal, Probo also contended that the appellant was estopped by convention from denying that there was a company called CMCS and that he was liable on the guarantee.

Held, allowing the appeal:

(1) Even if the appellant did make the representation that he was going to work for CMCS, Probo could not have reasonably relied upon that representation for its belief that CMCS existed. As Probo had already entered into an earlier lease in respect of the other yatch, it was already satisfied that CMCS existed. Further, whether or not CMCS was incorporated was a fact that could have been objectively established by making a simple search at the Registry of Companies: at [13].

(2) Brattain was personally liable under the lease by virtue of section 41 (2) of the Act. It was clear from the language of sections 41 (1) and 41 (2) of the Act that where a contract was purportedly entered into by any person on behalf of a company prior to its formation, that person was personally bound by it prior to ratification and in the absence of ratification by the company. It was irrelevant whether the proposed company was eventually incorporated for to hold otherwise would mean that the provision in s 41 (2) could be easily circumvented: at [17].

(3) In deciding whether an agent purporting to act for a non-existent principal would be personally bound by the contract, the fundamental question in every case must be what the parties intended or must be fairly understood to have intended. In this case, since Probo had fully performed its obligations under the Elke lease, there was an unrebutted presumption that Brattain intended to bind himself personally: at [18] and [19].

(4) The appellant was not liable under the guarantee since it only covered sums due to be paid by CMCS to Probo and not sums due to be paid by Brattain to Probo: at [20].

(5) The doctrine of estoppel by convention did not operate in this case. For the doctrine to apply, the parties must not only have assumed that CMCS exists, but CMCS should also have received the benefit of the lease agreement. In the present case there was no entity known as CMCS to receive the benefit. Alternatively, Probo must be able to show that the parties proceeded on the understanding that the lease agreement was between Probo and Brattain personally but there was no evidence of such an understanding: at [26].

Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84 (distd)

Black v Smallwood (1965-1966) 117 CLR 52 (folld)

Derry v Peek (1889) 14 App Cas 337 (refd)

Kelner v Baxter (1866) LR 2 CP 174 (folld)

Companies Act (Cap 185, 1970 Rev Ed) ss 35 (1), 35 (2)

Companies Act (Cap 50, 1990 Rev Ed) ss 41 (1), 41 (2) (consd)

Evidence Act (Cap 97, 1990 Rev Ed) s 93

Leslie Netto and S Magintharan (Netto & Netto) for the appellant

Goon Hoong Seng and Patricia Teh (Low Yeap & Co) for the respondent.

Judgment reserved.

Goh Phai Cheng JC

(delivering the judgment of the court):

1 The respondents/plaintiffs (“the plaintiffs”) are a company providing hire-purchase financing services. They purchased a yacht known as the Shanti at a cost of $230,000 and leased the same to Container Manufacturing Consultant Services Pte Ltd (“CMCS”) under a lease agreement executed on 14 March 1983 (“the Shanti lease”) between the plaintiffs as lessor and CMCS as lessee for a term of six years commencing on 14 March 1983 at a rent of $3,820.30 per month payable monthly in advance. The Shanti lease was signed by Larry Brattain (“the second defendant”) for and on behalf of CMCS. Below the signature of the second defendant are the following type-written words: “Larry Brattain - Director”.

2 The plaintiffs subsequently purchased another yacht known as the Elke at the price of $508,000 and leased the same to CMCS under a lease agreement executed on 17 May 1983 (“the Elke lease”) between the plaintiffs as lessor and CMCS as lessee for a term of six years commencing on 14 May 1983 at a rent of $8,438 per month payable monthly in advance. The Elke lease was signed by the second defendant for and on behalf of CMCS. The yacht Elke was insured, and a licence was obtained from the Port of Singapore Authority in respect of the yacht, under the name of the appellant (“the first defendant”).

3 The first defendant was associated with the second defendant through a Hong Kong company called Tocoma Ltd in which they were both directors and shareholders. The first defendant was interested in investing in CMCS and was brought into the transaction by the second defendant.

4 The first and second defendants also signed a guarantee dated 17 May 1983 (“the guarantee”) as co-guarantors whereby they guaranteed the due payment to the plaintiffs of all sums under the Elke lease. The guarantee is in the plaintiffs' printed form and it is printed at the end of the Elke lease. The material clause in the guarantee reads:

In consideration of [CMCS] entering into [the Elke lease] hereinbefore set out the undersigned (and if more than one jointly and severally) hereby guarantees the due...