Key points

  • Trading names are not legal entities in their own right. If you use a trading name to conclude a contract, or are on the receiving end of a contract (or correspondence) which uses a trading name, you cannot be sure what person or company you are actually dealing with.
  • It might turn out to be a false economy - both in terms of time and money - if you do not double-check issues of identity and capacity before concluding the transaction.

Background

When it comes to contracts, the real estate sector is used to a high degree of formality. For a contract relating to the sale of land - or for an interest in land (e.g. an agreement for lease) - to be validly concluded, it must comply with the requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (section 2). And any deed relating to such a transaction (e.g. a transfer or a lease) must comply with section 1 of that Act.

But other contracts, relating to issues which might arise out of land ownership, often do not have (or require) such formality. Errors can easily occur, with unintended and/or unwanted consequences.

A recent example of this is the case of Muneer Hamid v Francis Bradshaw Partnership [2013]. The Court of Appeal was asked to consider whether Dr Hamid - as the person who signed a letter - had concluded a contract personally, or whether he had signed in his capacity as a director of Chad Furniture Store Ltd (Chad). Dr Hamid was the sole director of, and sole shareholder in Chad. Chad traded under the name of Moon Furniture.

Dr Hamid had, in his own name, recently taken a 999 year lease of a site in Rochdale. He was putting together the team who would design and construct a new building on the land. On completion, he was going to relocate his existing furniture showroom to the new building. Francis Bradshaw Partnership (FBP) was the construction firm which would carry out the building works.

The contract appointing FBP was made by way of two conversations with, and one letter addressed to, FBP. The letter was signed as follows: "Yours sincerely, [hand written signature of Dr Hamid], Dr M Hamid, Moon Furniture". The partner at FBP who received the letter assumed that Moon Furniture was the trading name of a company, but he did not consider the issue any further.

The question before the Court of Appeal was whether the contract for the building works was made by FBP with Dr Hamid personally, or with Chad. A claim for damages was being pursued against FBP, due to problems with a retaining wall that had been put up as part of the works, but could FBP successfully resist the claim? If the contract had been concluded with Chad - as FBP argued - then no damages would be payable because Chad did not have an interest in the new site (and therefore had suffered no loss).

Insofar as the letter was headed up (and finished off) with the words "Moon Furniture", FBP assumed it had contracted with Chad - a view maintained by the FBP partners at the time of the discussions and correspondence. Moon Furniture was, after all, the trading name of the company.

By contrast, Dr Hamid argued that he had entered into the contract personally. The Court of Appeal agreed with him, as had the judge below in the local Technology and Construction Court. None of the statutorily required company details were shown on the letter, and Dr Hamid did not write "director" or any similar indication (e.g. "for and on behalf of") after his signature. At no point did anyone from Dr Hamid's side of things - including the architects appointed by him, who had the discussions with FBP - ever mention a limited company, even though FBP had assumed as much and could have clarified what the actual situation was.

The Court of Appeal held that enquiries which could have been made - but which were not - were irrelevant. The only question was what was actually known, as a matter of fact, by the parties. Private thoughts, assumptions and possible sources of information not followed up were all to be disregarded.

If Dr Hamid had meant to contract with FBP in anything other than a personal capacity, he should have made this very clear on the face of the document to which he put his signature. The Court of Appeal quoted from another of its judgments, in 2003, in the case of Internaut Shipping GmbH v Fercometal SARL: "Prima facie, a person does not sign a document without intending to be bound under it or, to put that thought in the objective rather than the subjective form, without properly being regarded as intending to be bound under it. If, therefore, [the signatory] wishes to be regarded as not binding himself under it, then he should qualify his signature or otherwise make it plain that the contract does not bind him personally".

The Court of Appeal reviewed some of the authorities behind the difference between issues relating to the identity of a signatory to a contract and those which arise out of the capacity of that signatory. It reiterated that extrinsic evidence - i.e. outside the terms of the contract entered into - is not admissible if there is a question as to the capacity of the signatory. The person who signed will be the contracting party unless:

  • the document makes it clear that he signed as agent for a sufficiently identified principal, or as the officer of a sufficiently identified company; or
  • it can be shown that both parties knew he was signing as an agent or company officer.

By contrast, extrinsic evidence can be taken into account when arguing about the identity of a signatory. This is one of the few exceptions to the parol evidence rule - a common law rule, some 200 years old. This provides that, where there is a written contract, oral evidence cannot be received so as to add to, subtract from or vary those written terms.

Things to consider

As mentioned at the outset of this article, real estate practitioners must comply with statutory requirements in order to conclude contracts involving land. But the use and occupation of land gives rise to myriad other reasons to contract with companies and individuals for the provision of goods and services. It is therefore important to make sure that, when signing or receiving a contract, it is clear whether someone is signing in their private capacity, or whether they are acting as agent or director for another legal entity, be that other entity a corporate or individual person.

Fines can be levied if a company breaches the Companies Act 2006 requirements as to the inclusion of company numbers, registered office addresses etc on websites, emails, letters and invoices etc. And the officer/s of the company who fail to satisfy these requirements can be held personally liable, including as a matter of criminal law. Quite apart from all this is the danger of a contract being unenforceable, or enforceable but not against - or by - a party that might have been thought to be the contracting party. Businesses of all types should therefore check to ensure the correct execution of all their contracts.

It remains to be seen whether the safeguards, provided for real estate contracts by Section 2, will survive in the long-term. In view of the importance and value of land transactions, it would seem sensible that they do unless replaced by a no less stringent regime.