A recent Court of Appeal decision has highlighted the importance of identifying the parties to a contract, particularly where a limited company uses a trading name that is different from its company name.
Dr Hamid was the director and sole shareholder of Chad Furniture Store Limited (“Chad”), which traded under the name “Moon Furniture”. Chad was looking to open a new showroom and Francis Bradshaw Partnership (“FBP”) was contracted to provide engineering services in connection with the project.
The key terms of the contract were set out in a letter written by Dr Hamid. The letter was written under the heading “Moon Furniture” and included details such as a postal address, e-mail address and website address that all related to Moon Furniture; there was no mention of Chad anywhere in or on the letter. Dr Hamid signed his name directly above his typed name which, in turn, was above the words “Moon Furniture”:
FBP were told that Dr Hamid owned Moon Furniture; at no stage were they told that Moon Furniture was actually a trading name of Chad.
The Court of Appeal held that FBP had contracted with Dr Hamid personally, rather than with Chad. The decision was based primarily upon the following evidence:
(i) the letter contained no indication that Moon Furniture was the trading name of a limited company, and Dr Hamid did not describe himself as a director. A reasonable person would be entitled to believe that Dr Hamid owned Moon Furniture and that, consequently, they were contracting with Dr Hamid personally; and
(ii) FBP were actually told that Dr Hamid owned Moon Furniture; they were not told of the existence of Chad, the limited company.
Although it would have been possible for FBP to make enquiries and discover that Moon Furniture was owned by Chad, FBP were not under an obligation to do so. Accordingly, the Court was not required to consider this in reaching its decision.
In this case, Dr Hamid had been trying to argue that he had contracted personally because he wanted to sue FBP for losses that he had suffered. If the contract had been with Chad, it would not have been possible to prove that Chad had suffered any loss. The principles of the case would apply equally, however, if FBP were trying to enforce the contract and prove that Dr Hamid was personally liable under the contract rather than Chad.
We often see copies of routine contracts that have been signed by directors of companies using the trading name of the company only, with no indication that the business is actually owned by a limited company. Common examples are photocopier lease hire agreements, or vehicle hire purchase agreements. The risk is that, if something were to happen to the company and payments under those contracts were to stop, the director could be personally liable to make the payments.
Another common example is where a company is contracting with its customers, but the contract makes no mention of the limited company and is signed by a director of the company under the company’s trading name. The customer could argue that they had contracted with the director personally rather than with the limited company. This would not only have implications for the company in trying to enforce the contract, but it could also cause significant problems if the company were to try to sell its business and assign those contracts (or if the shareholder(s) of the company wanted to sell the shares in the company which did not have the benefit of those contracts).
When contracting on behalf of, or with, a limited company, you must always use the full company name of the contracting party and make it clear that the person signing for them is a director or other agent of that contracting party. For example:
for and on behalf of XYZ Limited”
Please contact Chris Wills if you would like to discuss any of the issues raised in this article.
The information provided in this article is for general information purposes only and does not constitute legal or other professional advice and cannot be relied upon as such. Any law quoted in this article is correct as at 20 May 2013. Appropriate legal advice should be sought for specific circumstances before any action is taken. Copyright © Murrell Associates Limited, May 2013.