When you enter into a contract do you always ensure that the capacity in which you are signing the contract is clear? If you do not intend to be bound personally, do you always make it clear that you are signing on behalf of another person or entity? These may seem obvious questions and it is understandable that once the terms of a deal have been negotiated, signing the contract can seem a mere formality but failure to take these steps may result in unintended and potentially damaging consequences including personal liability or the inability to enforce the contract.
In the recent case of Hamid v Francis Bradshaw Partnership  EWCA Civ 470, the Court of Appeal confirmed that an individual was party to a contract evidenced in part by a letter, even though he had signed the letter above and below a name which was the trading name of a limited company.
Dr Hamid was the director and sole shareholder of a limited company, Chad Furniture Store Limited, (“Chad”) which traded under the name "Moon Furniture". He held land under a 999 year lease, on which he intended to build a showroom for Chad. He employed Francis Bradshaw Partnership (“FBP”) to provide engineering services for this project.
FBP did not know that they were contracting with Chad - they were told that Dr Hamid owned the Moon Furniture business. Dr Hamid recorded the pricing for the contract in a letter to FBP headed Moon Furniture. He signed his name above his typed name, which itself was above the name Moon Furniture. There was no indication that Dr Hamid was signing as director of, or on behalf of, Chad, or that Moon Furniture was a trading name of Chad.
The parties fell out and Dr Hamid sued FBP for damages. FBP argued that the contracting party was Chad and not Dr Hamid. If Chad was the correct claimant, it could be argued that Chad had not suffered a loss because it did not own the land. Their reasoning was that as the letter was written and signed by Dr Hamid on behalf of Moon Furniture, the letter was sent on behalf of whatever entity traded under that name.
The High Court, interpreting the letter objectively, decided that Dr Hamid had personally engaged FBP on the following basis:
- Dr Hamid signed the sole letter evidencing the contract without making it clear that he was not contracting personally. There was no indication that Moon Furniture was a company and Dr Hamid did not describe himself as “director”. A reasonable person analysing the letter objectively would conclude that Moon Furniture was Dr Hamid.
- FBP were not told that their client was a company. They were merely told that Dr Hamid was the owner of the Moon Furniture business.
- Where the issue is whether someone contracted personally or as agent, there is not to be imputed to the other party knowledge that they did not have. There was evidence to show that Moon Furniture was the trading name of Chad but FBP were unaware of that evidence.
- The Court of Appeal upheld this decision. The court identified the crucial issue in this case was not identity, but capacity - whether Dr Hamid was contracting personally or signing the letter as director of, alternatively agent for, Chad. The question the court considered was what a reasonable person, furnished with the relevant information, would conclude.
The court decided that Dr Hamid did not effectively qualify his signature or make it plain that the contract did not bind him personally. The reference to Moon Furniture, without any indication that it was the trading name of Chad was not an effective qualification.
How to avoid this problem:
- Determine who you are contracting with. If there is any doubt, always ask first.
- Make sure that the identity of each party is clearly set out in the contract.
- If you do not intend to be personally liable, make this obvious for example by stating that you are signing as a director of a company.