Principle of contract law
‘The January Contract’BIQ and S Ltd entered into a contract in January 2016 for the wiring of a branch of the Northwest Bank at a price of £86,000. The contract also provided that S LTD would complete all work by 6 June 2016.
BIQ’s contract with the Northwest Bank for the building of the branch in question provided that the work would be completed by 22 September 2016. It also provided that BIQ should be subject to a penalty of £50,000 for each week after 22 September that it failed to complete the work agreed.
By mid-May it became clear that S Ltd was not working sufficiently quickly to complete the work in the time agreed. BIQ therefore promised to pay S Ltd an extra £30,000 to complete the work by the date provided in the January Contract.
S Ltd consequently worked more quickly and completed the work in the time agreed.
‘The May Contract’
The second contract between BIQ and S Ltd was entered into on 7 May 2016. It provided that S Ltd should install wiring to ‘Firtree’ (a private house that BIQ had contracted to build for a private client). The price agreed between BIQ and S Ltd was £35,000. The date agreed for BIQ to complete the work was 4 August 2016. BIQ had not been made subject to any late completion penalty clauses in its contract to build ‘Firtree’.
In July, BIQ again decided that S Ltd was working too slowly to complete the work by 4 August 2016. BIQ consequently promised to pay S Ltd a further £15,000 to complete the work on time as agreed in the May Contract.
BIQ subsequently discovered that as soon as it promised to pay extra to ensure compliance with the January Contract for the wiring of the Northwest Bank, S Ltd withdrew all its workers from ‘Firtree’ and put them to work on a contract for another customer, thus ensuring that the May Contract would not be completed on time.
BIQ thinks S Ltd has behaved dishonestly and is now refusing to honour either of its promises to pay S Ltd extra money if the work was completed on time.
Advise BIQ on whether:
1. (a) S Ltd can enforce BIQ’s promise to pay an extra £30,000 for completing the work on the January Contract within the time originally agreed.
2. (b) S Ltd can enforce BIQ’s promise to pay an extra £15,000 for completing the work on the May Contract within the time originally agreed.