A recent High Court decision highlights the importance of being clear about the parties to a contract.
The High Court recently found a builder to have verbally entered a contract with a homeowner in his personal capacity, rather than as an agent of the company which he later purported to have been representing (Diane Lumley v Foster & Co Group Ltd and others  EWHC 54 (TCC)).
This case involved a builder, Mr Foster, who had arranged to carry out building work during a meeting with the customer at her home. When the customer later brought a claim against the builder for defective works, he tried to argue that the contract was with his company, which had gone into liquidation (making the claim worthless). However, the parties had no written contract and Mr Foster had made no mention of the limited company at the meeting.
The Court noted that the question of who was party to the contract turns on what a reasonable person would conclude, if given the relevant information and disregarding the parties’ private thoughts. In the absence of any reference to the company at the time that the contract was made, Mr Foster had failed to make it clear that he was not intended to be personally bound by the contract and, therefore, it was reasonable to conclude that Mr Foster had entered the contract on his own behalf.
Why is this case significant?
Where there is a dispute over the identity of the parties to a contract, the court won’t take into account the parties’ subjective beliefs, but will consider what a reasonable person would think.
Whilst the courts may not have determined any ground-breaking points of law in this matter, it’s a useful reminder of the importance of making clear who is intended to be bound by a contract.
It’s particularly important to ensure that the intended party is made clear in circumstances where the contract is made verbally or where a company uses a trading name or operates as part of a group of companies.
We always recommend putting a contract in writing and making sure that it includes the names of the parties clearly and accurately. If you trade through a limited company, make sure you include the full company name, not just a trading name.
Setting out these details at the start can avoid confusion and potentially save time and money later, should a dispute arise. Get it wrong, and you could find yourself personally liable under the contract, as Mr Foster did.
If you need any advice on this issue or need assistance in preparing a contract, please get in touch.