Cost of your litigation filing fee to recover money due under your contract: $73.
Cost of the appeal because you contracted and sued the wrong party: $9,000.
Cost of your lost time as a business manager in all your mess: $5,000.
Cost of identifying the contracting parties correctly in the first place: Priceless.
Avoid litigation costs. Read and bookmark this article and use experienced contract lawyers. This article overviews how to identify, search and check parties to a contract. To be reminded of the need, read the famous “Party of the first part” contract scene in A Night at the Opera (1935) by the Marx Brothers and watch the “Who’s on First ” comedy skit from the 1940s by Abbott & Costello.
1. Identify the parties
When contracting, it is vital to correctly identify your side, ie your contracting party, and correctly identify the other party with whom your side is contracting.
- Check if the other side is an individual, company, partners trading under a business name, trading trust or some other entity. For example your side may be you as an individual, eg Mary-Ellen Ayoub. The other side may be a company, eg Humungous Enterprises Pty Ltd.
- In other words, the addressee for a contract should be an existing “entity” as that is defined in law. In legal matters if you communicate or contract with the wrong entity – addressee, recipient, party, whatever – then your error is usually legally fatal under contract law. Other areas of law may come to save you, but why take the risk.
- If the other party is a company or other business organisation, specify its full name and its Australian Business Number (A.B.N.). This is an identifier unique to Australia, driven by the needs of taxation authorities, and it has added another layer of complexity. An example of a company’s full name is “BHP Billiton Ltd”, not “BHP”. Always check the Australian Business Number.
- Add the other party’s further details, such as a street address, to help identify it and provide a ready reference. Where you consider it unnecessary, you can decide to not add such additional identification details.
2. Check the parties
You should always check the identity of all sides, ie all parties. There’s no simple 1, 2, 3 for this. Instead, general due diligence must be exercised to ensure that all the parties are correctly identified.
This can involve checking details on Websites, letterheads, searches of registers (company register, business name registers, trade mark register etc) and open or discrete telephone enquiries made to the other side’s representatives.
- There are numerous public and fee-for-service directories available against which you or your advisers might or should check details, especially if the preliminary checking work locates inconsistencies or unexplained information gaps. The directories include White Pages, land register records and Credit Reference Association of Australia records. Most lawyers and accountants have arrangements with official database resellers to conduct online searches for a fee per search. For a fee, currently about A$20 (plus any adviser’s interpretation time), you can get quite a lot of data on a company in Australia.
- For companies and individuals, partnerships or other entities operating under a business name, you should at a minimum check the free-of-charge National Names Index Website operated by the Australian Securities and Investments Commission.
3. Caveat – be cautious
This article provides general commentary, for specific matters please ensure you obtain matter-specific legal advice.
Sedimentary business law making is common nowadays, with parliaments and courts piling each law onto what came before, not always involving thorough review of practical implications. That’s why it has become so hard and why lawyers need to read more than ever. It was not all that easy to identify or check details about an entity even in the “good old days”.
The takeaway is that to ensure you are contracting the right party you have to follow a thorough regime of searching and checking as overviewed above.
Be cautious. There are many anomalies and traps. One arises in email communication.
If your communication is an email, it is often best to state the name of the addressee (ie party to the contract) in the body of the email, eg “The buyer I confirm is your company, Humungous Enterprises Pty Ltd ABN 123 456 789”. This is because the email “recipient” may be an individual who is not the intended contracting party.
4. Solution – use a shell agreement
There is a simple way to overcome most of the problems of identification of parties in contracts. It involves using a template contract, what we call a “shell agreement”. It’s a “shell” because it is used to mold contracts. Another analogy is to think of it as a contract cookie cutter.
As specialists in contract standardisation, it has been important for us to refine our shell agreement and keep it up-to-date. Its content helps identify parties and generally make contract drafting better, faster, cheaper and easier. It is offered in a package with other contract preparation legal tools, all in Microsoft Word. Send an email or call to discuss this solution. It certainly suits non-lawyers with some legal know-how, solicitors and in-house counsel. With an hour’s training over the phone anyone could use it with confidence.
* Footnote on the “Priceless” trade mark
The word “priceless” in this post is a reference to the US court decision on 9 March 2004 of George B. Daniels, District Judge Decision of the US District Court in the case of MasterCard International Incorporated v. Ralph Nader [PDF]. Mastercard sued US presidential candidate in 2000, Ralph Nader, for his satirical use of Mastercard’s “Priceless Advertisements” for his own campaign commercial. Mastercard said it involved infringement of US trademark, the Lanham Act, copyright breach, misappropriation, deceptive trade practices and unfair competition. The ad featured a sequential display like the Priceless Advertisements, and it ended with the tagline “There are some things that money can’t buy.”
Reflecting its US trade mark position, Mastercard International Inc is the registered proprietor of PRICELESS as a word trade mark in class 36 of the Australian trade marks register. It also owns a registered trade mark for the slogan: THERE ARE SOME THINGS MONEY CAN’T BUY, FOR EVERYTHING ELSE THERE’S MASTERCARD.
Nader won in a motion for summary judgment. Among other things the judge noted “the Nader Ad is political, not commercial, in nature.”