Think before you sign

This is a lesson I was reminded of in the last few weeks. Out of the blue, I received notification from a law firm that a legal judgment had somehow been obtained against me and it was preparing to issue a warrant of execution for a contract my business partner and I thought our business had terminated almost four years ago.

In a nutshell, our business had bought a marketing database tool the supplier would update every quarter with new information about various industries.

The contract was due to run over three years and the company had created a financing vehicle where we would pay off the system as we went.

At the time we were feeling very ambitious and my business partner and I didn't give a second thought to signing surety for the contract. Unfortunately, like with many small businesses, things didn't quite work out the way you plan.

After nine months we concluded that the data was not meeting our requirements and asked the supplier to come and collect the system. After that we did not hear anything from them again, and it turned out that the company had gone out of business.

We have subsequently moved offices twice since this happened but when we signed surety on the contract we used our initial physical address as a domicilium, which apparently would turn out to be rather important.

We packed the system away and forgot about it until the middle of July this year, when I received an email from a law firm acting on behalf of a banking group to whom the financing company had ceded its book.

The message read: "By the way, we picked your details up off your website and just a quick note to inform you that we received a court judgment earlier this month and you are now liable for an amount of R36 000. If you don't pay this amount by close of business tomorrow, we are issuing a warrant of execution to come and seize your assets."

I picked up the phone to the law firm and explained that we had not heard a thing from the supplier in three years and how is it possible that a judgment could be handed down in court without making any effort to contact us? 

If they had been able to find my email address or registered address on a contract or website, then surely they could have looked one line down to find my cellphone number.

The short answer: thanks for the suggestion, but we don't really need to contact you to let you know that we are taking you to court. We tried the registered address that you put on the contracts a few years back and because you did not update it, we can proceed as we want.

When I pointed out that the supplier had come to the new address to update software so they knew where to find us, I got a shrug of the shoulders and was referred back to the address on the contract.

I sought independent legal advice on the matter and suggested meeting with the bank to discuss a settlement and get this thing behind us, but the reality is that the moment that judgment was handed down and I wasn't there to defend myself, the bank and its attorneys held all the cards and all I could do was smile and cough up.

Lessons for young entrepreneurs:

 - Don't sign personal surety for business assets unless it is an absolute last resort.
 - Manage your contracts that you enter into and keep a full paper trail of decisions you take concerning these contracts.
 - If you decide to terminate the contract, make very clear when it stopped. If necessary, seek legal advice even if it might   cost a bit upfront.
 - Think lean! Always ask yourself whether or not you can justify the cost of the contract you are entering into. 

I was absolutely floored that law firms - and the courts (!) - allow judgment to be handed down without a genuine effort being made to contact all parties involved, but I guess you live and learn.

I don't think I am the only small business owner who has made a mistake of this nature. As you set out on the entrepreneurs' path, I hope my experience gives you some food for thought before you sign something you might regret down the line.

- Fin24.com