Due Diligence: Just Who Are You Dealing With?

DO YOU KNOW WHO YOU’RE DEALING WITH?

Due Diligence Before You Enter Into An Agreement

I’ve represented a number of clients over the years who failed to perform any due diligence with regard to the party they were contracting with before they entered into the contract. Had they performed some quick and easy due diligence before they signed the contract, they would have saved themselves a lot of headaches, hassles, and money.

Before you enter into a contract and obligate yourself to do something, take some time to learn about the other party. If you are entering into an agreement with a business entity (e.g. corporation, LLC), check the Secretary of State/Corporation Division website to learn about the entity. You’ll be surprised the number of situations I’ve seen where clients entered into contracts with defunct or non-registered entities. Find out who the principals of the entity are. The Oregon Secretary of State website enables you to do a business search by individual– whereby you learn of the businesses (active and inactive) for which an individual has been an owner or corporate officer. Red flags include individuals who started numerous businesses in the past and businesses that fail to file annual reports and pay annual fees.

If the person or entity with whom you’re negotiating provides services which requires a license or registration (i.e. contractor, realtor, medical professional, etc.), you should be able to search on-line records regarding their licensing history and complaints. Red flags include numerous complaints, suspensions, or an inactive license/registration.

If you are contracting to perform work on real property, perform research with regard to the ownership of the real property (after obtaining a good address for the property) to determine who  owns the property and who has authority to allow work to be performed on the property. If you cannot locate on-line information with regard to the subject property, contact a local title company and ask for a trio or list-pack for the property.

In light of the amount of information available on the internet these days, you should also consider doing a Google or Bing search with respect to the potential new client and/or their principals. You might be surprised as to the amount of information available about them on the internet.

Your time is valuable. You don’t need to be dealing with individuals or entities who have bad intentions or who are deceptive. You’re probably better off taking a vacation to the beach or the mountains than you are dealing with unscrupulous people. Take some time to learn about the party with whom you will be dealing before you obligate yourself or your company. You may find out that they aren’t who they claim to be. Such time is time well spent. The time spent performing due diligence before you enter into the contract could be as important as the time spent fulfilling your obligations under the contract. As the old Benjamin Franklin quote goes, “an ounce of prevention is worth a pound of cure.”

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