Newsletter 5

Monday 9 October 2023

Question:

Fiona wanted to carry out some building work in her holiday cottage to provide extra training facilities for her horses. She decided to build a large, fenced area for them to run in. Fiona entered into a contract with Granger Ltd to build the training facilities for £20,000. The contract provided for completion of the work by 1st March.

When work commenced on the training facilities, Granger encountered a network of pipes immediate under the surface, which need to be diverted. Granger demanded an extra £5,000 to cover their increased costs. Fiona could not find any other builder with the expertise to complete the contract on time and so agreed to pay the extra charge, without protest, so that the grounds would be completed on time for the horses to start training in the spring. On completion of the training facilities on 1st March Fiona refused to pay Granger any more than £20,000. Should Fiona:

1. Pay Granger £25,000 as the promise to pay extra was supported by consideration
2. Pay Granger £20,000 as the promise to pay extra was procured by duress
3. Do not pay Granger anything as the contract was frustrated
4. Pay Granger only for work done, up till the point that the pipes were discovered
5. Pay Granger £25,000 on the basis of promissory estoppel

Top Tip: There has been trouble with booking for SQE1 January’s sitting. Kaplan is offering additional dates and places in a variety of locations. If you have not been able to secure a booking, or are considering changing your existing booking, keep checking their website or get in touch with them directly.

Relevant Reading: I have prepared a thorough overview of issues of Formation, dealing with all the knowledge content you will need in a single video lecture accessible here. For relevant sections in a text see ReviseSQE Contract Law title. You can obtain* the text by following this link.

Answer and feedback to last week’s question: Last week’s question was as follows:

A limited liability company has two directors, Alex and Ben. Alex resigns from the company, but does not inform Companies House of his resignation. Ben continues to act as the sole director and signs a contract with a supplier for the purchase of goods. The goods are office equipment consumables, like ink cartridges and printing paper, and the seller is one of the company’s regular suppliers. Which of the following is true? A. The contract is void because Alex did not resign properly. B. The contract is void because there is only one director in the company. C. The contract is valid and binding because Ben is still a director of the company. D. The contract is valid and binding only if Alex’s resignation was properly made. E. The contract is valid and binding as it relates to the purchase of goods.

Correct answer: C. The contract is valid and binding because Ben is still a director of the company. A company can continue to function with a single director, and another director’s resignation does not become effective until it has been registered with Companies House. Therefore, regardless of whether Alex has resigned but not informed Companies House, the company can still be bound by contracts entered into by the remaining director. Remember that each director is de-factor authorised to represent the company (they are the company’s agent) and any internal issues with decision making do not affect third parties (s.40 Companies Act 2006)

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You will hear from us again next week.

All the best

Dr Ioannis Glinavos

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