Do You Know Who You’re Contracting With?
In business, success is all about relationships. If you have great relationships with your suppliers, your contractors, your employees, and your customers, you are likely to have a long and happy business career. What makes a great relationship in the business context? Pretty much all the same things that make a great personal relationship: mutual respect, honesty, clear expectations, and communication.
However, just like in personal relationships, business relationships don’t always run smoothly. Contracts don’t always get fulfilled, and companies don’t always get paid on time for the work they perform. That’s where legal enforcement may come in. However, legally enforcing a contract isn’t a magic wand. There are important pieces that must be in place to make a contract enforceable by law. One of these pieces is knowing who the parties are and properly naming them in your contract. How is it possible to enter into a contract without knowing the parties involved? It’s actually a lot more common than you might think. Let’s take a look at a common example we see in the business world:
Ted’s Moving Company has moving services to offer. North Family Dentist is moving offices from one side of town to the other. Dr. North decides to hire Ted to help with the move. They agree on the price, the date, and the terms of the contract. Both sign. But, on moving day, after the move is complete, Dr. North starts trying to negotiate a lower price. He knows he already signed a contract and agreed to the quoted price, but he has changed his mind and refuses to pay the agreed-upon amount. So, what happens now?
Well, Ted might spend the next few weeks sending letters, drafting emails, and trying to negotiate with Dr. North to get him to pay the agreed upon price. When all this time spent trying to collect starts adding up, Ted will be faced with two choices: let the outstanding invoice go or call his lawyer. If he calls his lawyer, the first thing she will say is, “Let me see the contract.” She will take a look at it and confirm a few things:
What Ted agreed to do for his customer
What the customer agreed to pay for this service
Who the customer is
It’s this last point that may actually trip Ted’s Moving Company up the most. Without truly knowing who the customer is, Ted might not be able to collect the amount he is owed. Of course, if Dr. North improperly named his business on this contract, Ted might be able to make the claim against the doctor individually as well as against the improperly named business.
Understand the ‘Who’ before You Get to the ‘What’ and ‘When’
Just like in personal relationships, knowing who you are talking to is incredibly important. No one likes to enter into a relationship only to find out that the person isn’t really who they thought they were. That’s why we invest time in getting to know the people we meet before entrusting them with the things that are most important. In business relationships, the process is just the same. When you enter into a business relationship, whether it is with a supplier, a customer, or a contractor, you need to know who you are dealing with. Sure, this may take a little extra time and homework at the outset of the relationship, but it is absolutely worth it.
In the Ted’s Moving Company scenario, Ted believed he was contracting with a company called “North Family Dentist.” That’s what it said on Dr. North’s business card! Ted knew Dr. North wasn’t hiring him personally, and he signed the contract on behalf of his company. However, when Ted’s lawyer takes a look at the signed contract, the first thing she does is look up that business online. According to the State’s website, there is no such business as North Family Dentist. So, what now?
Do Your Homework Before Signing the Contract
At Wakefield Law, we see this problem all too often. In over thirty years representing Northern Virginia businesses in collection efforts, we see contracts time and again that are signed in the name of businesses that either don’t exist or have lapsed and are no longer active. Without an active legal entity on the other side of the contract, collecting unpaid invoices becomes incredibly difficult. That’s why we can’t stress enough the importance of knowing who you are contracting with.
There are a number of ways you can protect yourself and your business when you enter into new business relationships,
Keep copies of any checks made out from the other business. Bank accounts should be opened in the name of legal business entities. Make sure that the business name on the check matches the business name on your contract.
Double check that the legal entity is active. In the Commonwealth of Virginia, we do this using the State Corporation Commission’s website. All legal entities in the Commonwealth are recorded there, along with the name of the registered agent, the business address, and information about whether the entity is active.
Confirm the spelling and full business name with the other party before signing the contract.
By doing your homework beforesigning a contract with another business, you can ensure that you know who you are dealing with, and you will be able to provide your attorney with more accurate information if you do need to pursue collection efforts.
What Happens if I Contract with a Business that Doesn’t Exist?
If you do end up signing a contract (or have in the past) with a business that either does not exist or has become inactive, it does not necessarily mean that you won’t be able to collect your money. However, it will make collection efforts more difficult, and it may preclude you and your attorney from using certain legal tools to pursue payment. All too often, we have seen businesses duped and cheated out of rightfully-owed funds simply because they did not take the time to get to know the other contracting party. Take it from us, it’s worth the effort to know who you are in business with.
Contracting with Individuals
Sometimes, there is no business entity to contract with. Does that mean you are off the hook if you are contracting with an individual? No! You still need to do your due diligence to ensure you know who you are dealing with. If you are contracting with an individual, rather than a business, ask to see the person’s driver’s license or other form of identification. Someone’s legal name may be very different than their nickname, name used on social media, or professional name. If someone signs a contract under an alias, it can be more difficult to track them down and enforce the contract against them.
Does all This Contract Stuff Make Your Head Hurt?
As a business owner, you already have a lot on your plate. If thinking about contract terms, collecting unpaid bills, and pursuing phantom businesses or people who don’t use their legal name doesn’t sound like your cup of tea, that’s where a great collection attorney can come in. Wakefield Law has been representing businesses throughout Northern Virginia as collection attorneys for over thirty years. In that time, they have developed a strong team of professionals to help individuals and businesses of all sizes enforce contracts and track down unpaid bills. Collecting unpaid invoices can be a real headache and accounts receivable can really add up. Reach out to Wakefield Law today for a free consultation at 703-771-9740. We are here to help you keep your business running smoothly.