Phonogram Ltd. v. Lane

Fragile Management (Fragile) was a company that was intended to be created to run a music group. Phonogram Ltd. (plaintiff) agreed to pay £12,000 to finance the group. Phonogram made an initial £6,000 payment pursuant to a July 1973 letter agreement with Fragile’s attorney, Brian Lane (defendant). The letter referred to the contract being completed between Phonogram and Fragile, stated Phonogram’s expectation that “you will undertake to repay us the £6,000” if the parties did not promptly finalize the contract, and asked Lane to countersign and return the letter to Phonogram. Lane did so. Phonogram paid the £6,000 via a check made out to Jelly Music Ltd., a subsidiary of a company of which Lane was a director. Phonogram and Fragile ultimately failed to conclude a contract, but Lane refused to return the £6,000, leading Phonogram to sue Lane. The trial court ruled that Lane did not agree to be personally liable under the July agreement but that Lane was personally liable under § 9(2) of the European Communities Act of 1972 because the agreement purported to be made on behalf of an as-yet unformed company. Lane appealed, citing the original French text of the European Economic Community (EEC) directive that motivated the United Kingdom to adopt the act. Per Lane, under the directive, § 9(2) applied only to contracts involving companies that were in the process of being formed, and Fragile did not qualify because insufficient action had been undertaken to incorporate Fragile as of the July agreement.