It’s important to be able to identify the other party to a contact you’re entering into.  That party will have obligations under the contract, such as supplying goods or services to you.  Also, you will have contractual commitments to the other party (for example, paying them for the goods or services they supply).  If there is a breach of contractual obligations, knowing whom to sue (and who can sue you), and being able to sue the right party, are fundamental points.

Tip 1 – Always contract with a legal entity

You should only enter into a contract with a legal entity (or ‘legal person’), being one that can, under the law, sue and be sued.

• Individuals and companies are legal entities.
• A trust is not a legal entity, but the trustee of the trust is.  Therefore, the contracting party should be the trustee (which may be a company or an individual).  The party could be named in a contract as “ABC Pty Ltd as trustee of the XYZ Trust”, or just “ABC Pty Ltd”.
• A partnership is not a legal entity separate from its partners.  Therefore, all the partners would be parties to the contract, but that may not be practical in the case of a large partnership.  However, as each partner is treated under the law as an agent of the partnership and the other partners for partnership business purposes, generally, any partner of a partnership could enter into the contract on behalf of the partnership.  Sometimes, a partnership will have a ‘nominee company’, which is a separate company owned or controlled by the partners and used to enter into contracts on behalf of the partnership (ie, the nominee company will sign the contract as agent, or as nominee or on behalf, of the partnership).

Tip 2 – Make sure you’re contracting with the right party

Aside from ensuring that the other party is a legal entity, you should also be satisfied that it is the party you intend to contract with.  Entering into a contract with the wrong party can have unintended and adverse consequences.  For instance, if an individual operates a business through a company, and you are a customer of the business, any contract with the business should be entered into by the company (as the supplier of goods or services), and not the associated individual (who may be a director or shareholder of the company). Contracting with the individual in that example could give rise to complications, such as if you needed to make a claim for defective goods or services supplied under the contract.

• Before finalising the contract, ask a representative of the business what the structure of the business is (ie, whether it is operated through a company, trust or other entity), so that you can correctly identify the party that needs to enter into a contract with you.
• Search the internet to help you to identify the correct party.  On-line ASIC company and business name searches, ABN searches using the Australian Business Register, domain name searches, and trade mark searches through IP Australia can all assist in revealing or verifying the legal entity with whom you are dealing.

Tip 3 – Check that the other party has authority to enter into a contract with you

Checking a party’s authority to enter into a contract will generally not be necessary where they are an individual or a company, but could be important when dealing with a trust or partnership, for example.  That is especially so in the case of a high value or high risk contract.

• If a company or individual is entering into a contract with you as trustee of a trust, you could ask for a copy of the trust deed to check that it gives them the power or authority to contract in that capacity (ie, as trustee).  That will be important if you wish to ensure that the assets of the trust will be available to meet the party’s contractual obligations (and any future contractual claims you may have against the party).
• To check that a person entering into a contract on behalf of a partnership has authority to bind all of the partners, it may be necessary to have the person provide evidence that they are a partner of the partnership (eg, a copy of the partnership deed, or a document under which they were appointed a partner).  Alternatively, you could ask to see a power of attorney or similar document signed by all of the partners authorising the person (or nominee company, if applicable) to enter into the contract (or contracts generally) on behalf of the partnership.

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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.

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