Do you know who you are doing business with?
A fundamental principle of contract law is that you can only enforce a contract against someone else who is a party to that contract. So ask yourself, do you know who it is that you are dealing with? More specifically who is actually making the promise, and on whose behalf is it being made? Because it may well be that when things go sour the person you wish to enforce the agreement against is not the person you can enforce the agreement against.
Three things to know about who you’re doing business with
- Are you still dealing with who you think you are?
Sadly it is not uncommon for companies to get into financial trouble. Often this is only temporary, and they manage to trade their way out of difficulty. Other times this is not possible and the company will shut down.
However, there is another possibility. Rather than ceasing to operate the company director may create a new business and commence trading under a business name similar to that of the old business. Suddenly you might find yourself unknowingly dealing with a new company, but with your agreement enforceable against the old one.
- Does the person you are dealing with have authority?
When making deals with other companies we aren’t always in contact with the business owner, particularly when dealing with larger firms. Rather, the point of contact when entering into an agreement is with an agent of the company.
Sometimes however, agents can get ahead of themselves; it’s possible that the ‘District Manager’ who just placed that large order for work to be done did not have the authority to enter into that contract. In this situation it is possible that the agreement will not be enforceable, or only enforceable against the agent and not the business owner.
- Are you dealing with a large commercial group?
Large commercial groups can often be comprised of any number of distinct companies, connected by a complex web of shareholdings and subsidiaries. This can create a situation where it is unclear who is making the promise and who you can enforce it against.
By way of example let us say Company A and Company B are part of a larger commercial group. An agent asks you to perform work for Company B without you ever appreciating that the agent is doing so as a representative of Company A.
If Company B is unhappy with the work, or just refuses to pay for the goods or services you supplied, who do you pursue for the debt? Unfortunately there is no hard and fast rule in this situation and who you actually have legal rights against may depend on all the circumstances.
2 steps you can take to prevent this from happening
Business and contracts can be a dynamic environment, and it’s not always possible to anticipate every eventuality. However, in the above scenarios sound familiar to you there are a few simple steps you can take to protect yourself.
- A phone call to the business
Often, if you are unclear whether the person you are dealing has authority to enter into that contract, or authority to act on behalf of that company, the quickest and most effective option is to give the other side a call. If you have any doubts, peace of mind can often be obtained by simply getting confirmation from someone you know does have the necessary authority. Of course it’s always better to get these things in writing and we can help with that.
- Get advice from a solicitor
If you still have doubts it is worth getting advice from a solicitor. We are highly experienced in untangling the corporate web to ensure that the company you are dealing with is who you think it is. If the circumstances require it, we can also help you work out who to commence legal action against.
How we can help
Contact our office on 07 3667 8966 for specialised advice on your rights and protections regarding your contracts.
Matthew Foster – Solicitor