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Question:
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Ken,
I noticed that one of my small business customers started to send me checks from different company name but same address, which tells me that they opened a different corporate/llc name (entity)
What's advisable to do in situation like this?
Thank you
HSS
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Answer:
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If you accept payment from anyone who has not signed your contract you will run the risk that you now have a duty to that payor, and no contract terms to protect you. If you see that someone other than your subscriber is paying you then you should require that party to assume the existing contract or sign a new contract.
Another risk you run when accepting money from a different entity is the recapture of those funds if that entity files bankruptcy or a creditor challenges the payment. Since that entity didn't owe you anything the payment of those funds could be considered fraudulent or a payment for no or less than adequate consideration.
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Comment and Question:
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Ken
I always say" are you authorized to sign the contract for the company?" and if they either don't know or are not sure then I go looking for someone else to sign.
What happens if somebody says yes they can sign for the company and several years down the road that person who signed doesn't work there anymore and somebody comes along and says they were not authorized to sign and then refuses any additional payments?
I had a railroad do exactly that after paying every month for almost seven years suddenly there's a new manager and payments stopped - the railroad claimed it was a mistake and I should never have been paid and that manager is now gone and they wanted to cancel the service and also wanted me to give them their money back. We're talking about $30. a month so there isn't enough money involved for anybody to sue anybody.
What do you do?
Thesatguy
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Response:
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The law of agency is clear; an agent cannot establish his own agency. That means that you cannot rely on the agent's representation that he is authorized to bind the principal, your subscriber.
You do have a right to rely on apparent authority, which is another way of saying that a principal cannot permit someone to appear to have authority and then disclaim that authority later, especially after accepting some performance from the party relying on the action of the agent.
Generally you can accept an officer or manager of a corporate entity. Things get sticky when you accept a parent binding a child, a child binding a parent, a worker binding a business. You may run into fact issues to establish that you had a right to rely on the agent.
You should also keep in mind that an agent is not liable for his principal, unless the agent exceed his authority and the principal is not bound. So when dealing with an agent you should realize that it's not the agent who will be responsible [unless of course you get the agent to sign the personal guarantee that I have on all commercial Standard Contract forms] but the principal.
Let's say you have an adult child bring you in to provide Personal Emergency Response Service to the parent. You meet at the parent's home [or maybe it's all over the phone or Internet] and the parent signs off on behalf of the parent. You've got the parent's on the contract as the subscriber and the adult child signs. Arguably it's the parent who is responsible under the contract, not the adult child. Now that is what you want for purposes of liability, but if you have to sue to collect your money you may find that the parent has no assets.
When it comes to corporations you do need to be careful when dealing with managers. They are not officers and may be exceeding their authority. The fact that payments are made for years by the corporation may not help you unless you can show that the corporation knew about the contract. I suggested recently that your invoice refer to the contract so that you can show that all payments were made, not just because a bill was sent, but because of the referenced contract.