Legal Blog

Whatta Name

We have spoken in past newsletters of the importance of knowing the person with whom you are contracting and of ensuring that you are contracting in your own name. The value of these admonitions was illustrated again in a case in which we acted for a large electrical subcontractor.

Who’s on first 

The sub gave its quote to RPM’s Systems. That, of course, is just a name and style. The true entity could be an individual, a partnership, or a corporation. The acceptance of the quotation came from RPM’s Systems Inc. The entity is therefore a corporation since it has one of the magic last words (e.g. Limited, Ltd., Incorporated, Inc., Corp., Corporation).

The Work 

The sub contracted to perform the electrical work on a shuttle car that would ultimately be used to transport scrap from a conveyor belt coming from the operations portion of a manufacturing building to the shuttle car and then onto waiting trucks.

The general was the manufacturer of the shuttle car. The sub supplied 75% of its work on the car itself at the general’s facilities and 25% of its work on the owner’s facilities to make the car functional.

The sub completed the work, other than some deficiencies, and the general paid some of the contract price. However, there came a time when the general had received almost all of its money from the owner and had not paid the corresponding money to the sub. The owner had deducted $5,000 for work that it had performed, work that the sub claimed was an extra. The general had still not paid the sub for the remaining money owed on the subcontract, even considering the $5,000.

We were asked to commence an action to recover the money due.

Who to Sue 

When we performed a corporate search, we determined that the corporation, RPM’s Systems Inc., did not exist. A corporation, by the name of RPM’s Systems Automation and Design Quality in Motion Inc., did exist. At trial, we called it RPM’s Etc. We also determined that a numbered company had registered the business name and style of RPM’s Systems & Designs. Accordingly, the first question we asked ourselves was: whom do we sue?

Of course, we sued everybody. We included RPM’s Etc; the numbered company; and Hammond, who was a director and officer of both the numbered company and RPM’s Etc. Since the corporations probably had no money, the key to any possible collection was to obtain a judgment against Hammond.

We made the following allegations regarding Hammond.

– he warranted that he had the authority to contract in the name of RPM’s Systems Inc. and this warranty of authority was false because RPM’s Systems Inc. did not exist.

– he entered into a contract on behalf of RPM’s Systems Inc. when that corporation did not exist. Under section 21 of the Business Corporations Act, if that corporation subsequently came into existence and adopted the contract, then only the corporation would be liable. Until that happened, the individual who signed the contract was liable.

– the work that the general did was an improvement as defined in the Construction Lien Act. Accordingly, the trust fund provisions of the Act applied. The general breached those trust fund provisions and Hammond was therefore personally liable.

Decision 

Hammond claimed that the sub knew that the real person with whom the sub had contracted was RPM’s Etc. However, all of the documents stated otherwise. The general used the improper name on its purchase orders and packing slips. It used other variations of its name on business cards and letterhead. The correct name was never used, at least not before the sub had performed the work. Further, the owner only knew the general by the business name of RPM’s Systems.

The sub had done a credit check months before the contract and found that RPM’s Etc existed, but the sub’s right hand did not know what the left hand knew and, in any case, there could have been two entities.

The judge held that Hammond was liable:

– for breach of warranty of authority,

– under section 21 of the Business Corporations Act, and

– for negligent misrepresentation.

     The judge also decided that the work that the general performed for the owner was an improvement and that the Construction Lien Act applied. Accordingly, he also held Hammond liable under the trust funds provisions of the Act.

The statement of defence had stated that the contract was with RPM’s Etc; further, Hammond testified that the numbered company had agreed to assume liability for all of the obligations of RPM’s Etc. Accordingly, the judge was very accommodating and held both RPM’s Etc and the numbered company liable for the money owing.

Counterclaim 

The general put forward a rather novel claim against the sub. It alleged that because the sub did not perform its work well, the general lost future work and therefore future profit from the owner. That counterclaim did not get very far, because the judge held that the sub had performed its work satisfactorily. We had decided from the start that we would credit the general for the $5,000 that the owner had backcharged because it was not worth fighting over a small amount of money, particularly on an issue that we may well have lost.

Even if the general had been able to prove that the sub’s work was unsatisfactory, the general did not call anyone from the owner to testify at trial. The general therefore had no evidence to prove its allegation that the owner did not give the general further work because of the sub’s performance. Of course, the fact that RPM’s Etc was no longer in business and that Hammond was operating from yet another numbered company also ensured that the counterclaim was doomed to fail.

Moral 

Ultimately, we obtained judgment against Hammond on grounds other than the name confusion. However, it was very comforting to know that we had a good case against Hammond because of the name confusion. Had Hammond simply carried on business using the corporation’s correct name, all our causes of action against him, other than the trust fund claim, would never have arisen. There are two morals to this story:

1.   Use your correct corporate name.

2.   Do not have a corporate name that is nine words in length; nobody will use it properly. Your name, which is supposed to be an asset, will instead become a liability.