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BUSINESS LAW 16: Parties disagreed on whether loan was intended to be payable on demand.

This case arises from an initial stock purchase agreement and a subsequent loan transaction. The parties entered into a Stock Purchase Agreement whereby plaintiffs purchased a 49 percent interest in Company for a payment of $490,000. After the agreement was signed, Plaintiffs discovered that Company owed approximately $170,000 to its creditors, who held liens against Company’s assets that prevented transfer of equipment and inventory to Michigan.

Liens on Assets

Defendant informed Plaintiffs and was amenable to letting Plaintiffs out of the agreement. Plaintiffs, however, wanted to proceed and provided defendant $170,000 to pay the outstanding amounts.

After defendant and Company moved to Michigan, the relationship between defendant and plaintiffs deteriorated and there was disagreement over defendant’s role in the management and operation of Company. Plaintiffs eventually filed against defendant. The parties disagreed whether the $170,000 payment was intended as payment or was intended only as a loan.

Loan Repayment

The goal when interpreting contracts is to enforce the parties’ intent. In this case the evidence established that the loan was not intended to be payable on demand, and that the parties instead contemplated a time period for repayment. Defendant testified that when plaintiffs first offered to pay the $170,000, Defendant told plaintiffs during a phone conversation that the money would be in the form of a loan. Defendant explained that because this was occurring so quickly, he was not thinking about a repayment schedule or a rate of interest and the two did not expressly agree on these terms at the time.

In addition, when discussing the bank drafts, plaintiffs maintained that he did not authorize the 7 percent interest rate, because defendant had already told plaintiffs a that defendant would pay 15 to 20 percent. This testimony also indicates that plaintiffs expected repayment over time with interest, not that he contemplated that the $170,000 was to be a demand loan, in which the principal would be due upon demand.

Trial

In a pretrial ruling, the trial court found that the $170,000 payment was intended as a loan, but further ruled that the terms of the loan should be decided by a jury. At trial, the jury found that defendant was personally liable for the $170,000 loan and determined that the loan was to be repaid over 60 months, with an interest rate of seven percent.

Litigating Business Matters

If you are a business owner facing litigation, obtaining the right legal representation is essential. Many business litigation matters center on financial agreements. At Aldrich Legal Services, you will work with an attorney who has the extensive litigation experience.

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