Contract Negotiation Tip 008 | Name the Proper Party to Avoid the Slip

Imagine your company is about to land the big one. After months of negotiations with the people from Big Fish Inc you emerge from a meeting with the terms you want. The contract arrives, everything looks as you had anticipated, with one minor exception. The name of the other organization is slightly different than what you were expecting. Instead of ‘Big Fish Inc’ the other party is written as ‘Big Fish Holding Co’. Your organization is anxious to seal the deal and can’t be bothered with trifles. You sign the contract.

Six months later, after you’ve performed your end of the deal and your waiting for final payment from Big Fish Inc, things are starting to smell fishy. You send a demand letter that goes unanswered. Having exhausted diplomatic avenues, you retain a lawyer to pursue payment. The first thing your attorney does is a business entity search on the secretary of state website, so he can properly name, find, and serve a lawsuit on the soon to be defendant.     

Your attorney discovers two companies on file with the secretary of state, Big Fish Inc, in business for twenty years, and Big Fish Holding Co, formed three months before the deal was signed. Your contract is with Big Fish Holding Co, which, as the story often goes, you soon learn is going insolvent and intends to declare bankruptcy. You want Big Fish Inc on the hook and keeping them in a lawsuit will involve an expensive legal battle that Big Fish Co. has a good chance of winning, depending how well they played you. Big Fish Inc just gave you the slip.

Never sign a commercial contract without validating the other party. Go to the secretary of state’s website for the state of incorporation to get the proper spelling and corporate address of the company. If you don’t find the name on file precisely matching the name as written in the proposed agreement, or the corporate status is anything but ‘active’, it’s time to ask questions. Also, include in the contract the state in which the company is incorporated. If the business is a sole proprietor, the contract needs to state the owner’s name and business address.

When you’re contracting with more than one party each entities’ corporate name also must be confirmed and there needs to be a signature by the owner. 

If you’re working on a high value contract it’s wise to investigate the other party’s financial ability to perform. This can be done by checking their business credit file through a company such as Dun & Bradstreet. They look at a collection of scores and ratings to gauge the organization’s ability to make good on its contractual obligations.

During the negotiation don’t just focus on getting the right commercial terms. Make sure you’re getting the right party. Always verify their corporate name, address, and operational status. Include in the contract the official name and corporate address, exactly as recorded by the secretary of state, alongside the signature line of the authorized agent. If there’s a risk of the other party becoming insolvent, or you want to know more about their ability to perform, get a credit report. 

A little investigation before signing any commercial agreement can keep your company from getting the slip.

Kevin Walsh

Lead Attorney & Owner

1Source Law LLC


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