Contract Pitfall #1: Using an Incorrect Entity Name

As a healthcare and business law firm, we have many business entity clients.  It is common for business-minded individuals to operate multiple registered companies.  When entering business contracts, it is easy for the entity name to be mistyped, written in an abbreviated or well-known form, or somehow written incorrectly, especially for those individuals operating many similar entities.  There is generally no substantial penalty for such an error, however, it can cause unnecessary trouble should a contract dispute arise, including placing the rights, duties, and liabilities under the contract on the individual who signed as the nonexistent entity.  This post intends to alert our business readers of this easily avoidable pitfall and provide an overview of how Georgia courts handle such situations.

To start, the best practice is to sign business contracts using your businesses registered name.  To verify the full and correct business name of your entity in Georgia, you can visit Georgia’s Secretary of State website.

If, however, the contract has been signed by an individual purportedly acting on behalf of a nonexistent entity, the general standard is: “[A]n undertaking by an individual in a fictitious name is the obligation of the individual.”  Courtland Hotel, LLC v. Salzer, 767 S.E.2d 750, 752 (Ga. Ct. App. 2014).  Put another way, if you sign as a fictitious entity, you undertake the responsibilities agreed to by the fictious entity.

The good news is that signing on behalf of a registered entity where the name written is a mere-misnomer or insubstantial change to the registered name is not equivalent to signing on behalf of a fictitious entity.  The question, of course, then is when an error in name is considered a mere-misnomer or when it is a substantial enough difference to be considered a fictitious name.  Answering this question requires looking to case law.

In Courtland Hotel, the entity’s full name was “Convention Organization and Leadership Team, Inc.” but was written on the contract as “C.O.L.T., Inc.”  The Georgia Court of Appeals stated, “We are not persuaded by the . . . argument that these two names differed so substantially that the acronym must be considered a fictious name rather than an abbreviation.”  Id. at 752.  Similarly, in Hawkins 303 S.E.2d 164, the Georgia Court of Appeals found that “Hawkins Plumbing Co., Inc.” was simply a misnomer of “Hawkins Heating & Plumbing Co., Inc.”; thus, the entity was the party to the contract not the individual signing.

When the difference is more substantial, however, Georgia courts are apt to find the individual signer liable.  For example, in Zuberi v. Gimbert, 496 S.E.2d 741 (Ga. Ct. App. 1998), the Court of Appeals found “ATM Manufacturing, Inc.” too dissimilar from either “ATM America Corp.” or “ATM Enterprises, Inc.” to be considered a mere misnomer.   Similarly, in Jones v. Burlington Indus., 397 S.E.2d 174 (Ga. Ct. App. 1990), the court found “RBJ Textiles, Inc.” and “RBJ Textiles” appeared on their face “to be completely separate legal entities” from the registered entity “RONJON, Inc.”

The above cases show that abbreviations and slight alterations in entity names are not cause for concern, but the written name need not be completely different to be considered fictitious.  Given the risk of unintended individual liability, it is important to always ensure your business entity is correctly named within agreements.

Our attorneys are experienced in advising healthcare business clients on contract matters, including contract drafting and disputes.  If you have questions about contract or business matters or would like to discuss this blog post, you may contact our healthcare and business law firm at (404) 685-1662 (Atlanta) or (706) 722-7886 (Augusta), or by email, info@littlehealthlaw.com. You may also learn more about our law firm by visiting www.littlehealthlaw.com.

*Disclaimer: Thoughts shared here do not constitute legal advice.