The Law Office of Hutchinson, Thompson, Henderson & Mott

Who Signed That Contract?

October 18th, 2013

By: Nathan Green

Corporations have an obligation to ensure that everyone they contract with knows they are dealing with a corporation.  This is a matter of both legislation and judge made common law.  A great deal of money can be spent establishing a corporation to protect its owners’ from liability and it can all be destroyed in an instant if the obligations to identify the corporation are not followed.

Let’s consider two situations involving the purchase of widgets from a supplier in Toronto.  Our company “Widgets and Such Inc.”, is in need of 100,000 widgets.  A quick check of the phone book shows there are three companies in the area that sell widgets in these quantities.  Three phone calls are made by Tom Smith, owner of the company, and the following voice mail message is left at each number “Hello my name is Tom Smith.  I am looking for 100,000 widgets.  I need them by Friday delivered to Milton.  Send me a quote at Tom@widgetsandsuch.com.  Thanks.”  Three emails are received saying “Hi Tom, 100,000 widgets for Friday would be…” and three prices are provided say $30,000, $29,500 and $19,400.  An email is sent to the cheapest supplier saying “Ok, let’s do it. Ship to Widgets and Such 123 Main Street, Milton, Ontario – Tom”.  Here are the two situations:

1. The widgets are delivered on time and accompanied by an invoice to “Tom Smith”.  Widgets and Such Inc. fails before the invoice is paid, and the widget supplier sues Tom Smith personally.
2. The widgets are not delivered or are sub-standard and Widgets and Such Inc. sues the supplier for breach of contract, the supplier defends saying it contracted with Tom Smith not Widgets and Such Inc.

 

In the first case the supplier would rightly ask “when did Tom Smith tell us he was contacting us on behalf of a corporation?  Tom’s answer would be “Well you saw my email address and of course I was working with a corporation.”  The Toronto supplier could have an arguable case, and at the least Mr. Smith would be dragged into an expensive piece of litigation for want of a few words.  Meanwhile had it been clear all along that it was the corporation contracting there would be no question as to who was responsible.  Carelessness on Mr. Smith’s part would essentially have led to thousands upon thousands of dollars in legal fees and very possibly personal liability for the contract on Mr. Smith.

In the second example Widgets and Such Inc. would likely have an easier time pursuing a claim but the issue would likely eat up legal time and fees and if not handled correctly could impact the outcome of the case.

What is the solution?  There are several very simple things that would prevent this from happening depending on the business.  Things like business cards, standard order forms, email signature lines etc. all clearly bearing the full name of the corporation.  All contracts to be signed should (and are legally required to) clearly use the full and complete corporate name.  Each business will be different in how they can best communicate that they are a corporation but what every company must do is ensure those they contract with are explicitly informed they are contracting with a corporation.