Properly naming a non-paying client is of the utmost importance in New York debt collection. Failing to properly name the defendant can jeopardize your entire case. Here’s why it’s so important to properly name your non-paying customer — and how to do so.
Assume your company had an agreement with John Smith, LLC to provide services for Mr. Smith, and you dealt personally with John Smith. When Mr. Smith fails to pay you for the services your company rendered, you file suit against “John Smith.” However, instead of filing an answer to your lawsuit, Mr. Smith files a motion to dismiss for naming the wrong defendant. Will he be successful?
The answer in this case is yes.
Privity of Contract
In a straightforward breach of contract case, the party you must name as the defendant is the company (John Smith, LLC) and not the individual owner (John Smith). This is based on the “privity of contract” principle, which states that only the actual parties to an agreement can enforce its terms. The signer of an agreement only has privity of contract with the other signing party. If John Smith signed the contract with your company as “owner of John Smith, LLC” and not as “John Smith” (individually), then your company only has privity with John Smith, LLC. Even if you didn’t have an agreement, if the party you did business with was John Smith LLC, the same principle would apply. You would not have a claim against John Smith the individual because he was acting in his corporate capacity as owner of the company.
Recently our office represented a person, let’s call him “Bob T. Parsons,” who ran a company “Bob T. Parsons, P.C.” Bob Parsons retired seven years ago and his son “Miles” now runs the business. A client brought suit against Bob T. Parsons because that is whom the client believed they dealt with. However, they were dealing with Miles Parsons, the president of Bob T. Parsons, P.C. When we appeared in court, the judge dismissed the case against Bob T. Parsons, because the dealings were between the client and Bob T. Parsons, P.C., not Bob T. Parsons the individual. Because there was no privity with Bob T. Parsons the individual, Bob was not liable to the client.
Similarly, if you are dealing with a company that uses a trade name, it is very important to find out the legal name of the company before filing suit. For instance, let’s say your company dealt with a company called “Jackson,” but there’s no record of a company with the name “Jackson” at the address provided registered with the Secretary of State. If you file suit against “Jackson” at the address you dealt with but you do not have the correct legal corporate name, you won’t be able to obtain a judgment against the actual correct defendant.
Some companies, in order to avoid public knowledge of their official name, will have a registered company name completely unrelated to their trade name. One of the benefits of this is that, in the case of possible legal disputes, an adversary may not know the actual correct legal name of the entity to sue. However, if a company publicly uses a trade name, said trade name should be registered with the Department of State. Yet, many companies do not always register their trade names. Sometimes, investigation and confirmation with other public sources will be necessary to confirm the correct company name.
Having difficulties collecting from a non-paying customer. Reach out to Frank, Frank, Goldstein and Nager for a consultation. We have the experience that pays.
