Should Friends Go Into Business?
A recent case displays the risks of entering into business transactions with friends without having a formal agreement set out. A man who was building a house for himself and his spouse decided to install some complex electrical devices into the house. A friend of his, who works as a builder, was hired to carry out the work and advised him that it would cost in the region of £15,000.
The details had been settled on by the end of 2001 and there was a costed itinery of works at that point. As is not at all strange, as time passed the property owner changed the specification and added extra items to it. It is clear that as this was taking place, neither of the two men put the changes that had been authorised and their cost implications into proper written form, with the obvious result that at the end of the project, the bill presented was for more than £15,000 and a disagreement arose.
The homeowner refused to pay the additional and the matter ended up in court. The hearing took three days, the cost of which was approximated to have been similar to the amount of the original contract. In court, it was accepted that some of the changes warranted extra payment as ’variations’ or ‘extras’. Additionally, there was no complaint about the quality of the work: the disagreement was over the cost and the cost alone.
In actual fact, the claimant’s case was that it was a design and build contract with reasonable remuneration for labour and materials supplied. The defendant’s case was that it was a fixed price contract for £15,000 and that almost all of the additions should have been accommodated within that price.
The court ruled that the contract was not a fixed price contract and awarded the claimant a modest extra sum.
The main point is that the case only arose because, being friends, the two men did not settle on things formally as they went along, each assuming that their view of the circumstances was also held by the other. When this turned out to be incorrect, a falling-out was inevitable.
The moral of the story is that if you value your friendships, it is really important to double check that you have all the necessary paperwork in place if you do decide to do business with friends. It is a mistake to rely on the fact of your friendship to prevent a dispute. Always seek help from a lawyer.
Friendships and business very rarely mix successfully, be forewarned and forearmed and aware of all situations when entering into such agreements. To research legal jargon check out a legal definitions website.
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Tags: legal
