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Breach of Contract - Investor

Discussion in 'Business & Corporate Matters' started by skyle, Oct 26, 2021.

  1. skyle

    skyle Law Topic Starter New Member

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    Hi, I need some legal advice regarding a situation I have with an investor.

    Situation:

    An investor could not pay the full investment amount for the amount of equity in my private company so we set up a payment plan for them. The agreement was that they put down an initial amount and would pay in monthly installments paid on a schedule until the full amount was fulfilled.

    The Investor was able to put down 25% but when the time came for the installment payment to be collected, the investor requested a later payment due date due to some personal issues which I agreed to. The new due date came, and still no payment. This is a breach of contract because now it is past the due date for the payment and they are unable to pay.

    After speaking with them, I found that they have a family emergency which is requiring them to fund a family's medical situation and that is why they are unable to pay. In the time span of 1 week of going back and forth prior to the due date, the investor has made the following statements and requests:
    In the sequence of requests and events:

    1. Push back the payment until 3 months later and they would pay the full remaining balance. The 75% leftover.
    - To this I let them know that there is a late fee that would be applied for each missed payment because this was on the payment plan agreement they signed.
    - The investor denied paying the late fees.

    2. Pull out of the investment and get returned the money they initially put in.
    - The contract they signed states that they cannot request to pull out of the company until 1 year after. It has only been a little over 1 month.

    3. Push back the payment until 3 months later and they will be able to pay the 3 months of installments without late fees.
    - Missed payments would incur late fees according to the contract they signed.

    4. Finally, they said that they would be willing to surrender any shares and forfeit any amount they put into the company and just get out.
    - I let them know that on my terms because they are affecting my business and delaying it due to non-payment, there would be a fee. The investor was unwilling to comply with the multiple options I offered. The options I offered were to pay a lower fee to pull out now, pay a higher fee to pull out later or stay in the company as an investor but either pay the installments or they will have to pay the late fees if they want to pay later.

    5. For the last time, I spoke with them and they told me their situation. The Investor was unable to secure funds in order to pay the installments and will not be able to secure funds in order to pay later either. At this point, I offered them what they wanted which was to surrender all shares and cut ties with the company and leave their initial payment.

    Now my questions are, in the original investor agreement, there is no forfeiture clause. Would this still fall under the forfeiture laws/regulations where the investor agrees to forfeit their shares and funds and the company has no obligation to pay anything back? Would I still be able to give a 14-day notice to pay or otherwise they will be automatically terminated and forfeited? Since the investor could not pay on time and the due date is now past, it is a breach of contract so what is the best solution to this situation?
     
  2. Zigner

    Zigner Well-Known Member

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    You would need to have an attorney review your agreement and advise you on the matter. That is beyond the scope of an internet forum.
     
  3. adjusterjack

    adjusterjack Super Moderator

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    Now you can see how foolish that was.

    I have 10 widgets for sale for $1000. Buyer wants all 10 but only has $700 and would make payment on the balance. No thanks. Buy 7 widgets now for $700 and when you have another $300 you can buy the remaining 3 widgets if I haven't already sold them.

    I don't know what kind of business you are running or how long you've been at it but the lesson here is that you never sell anything to anybody on a payment plan if they don't have the money. If they can't get a loan from a bank, you certainly don't want the risk of being a lender.

    Maybe you can modify the agreement so that the money he already paid buys fewer shares. That way you both avoid lawyers and lawsuits. You'll either have to sue him or he will sue you if you try to keep his money and the share that he bought.
     
    justblue and army judge like this.
  4. skyle

    skyle Law Topic Starter New Member

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    The investor is someone who I have an association with. The payment plan was set in the account of their promise that they were able to pay. There was a sudden family medical emergency that came up that prevented them from being able to pay the installment.

    As for “keeping the money”, the investor brought up forfeiting it first. I’m just trying to see what my options are as the investor still committed a breach of contract for non-payment.
     
  5. army judge

    army judge Super Moderator

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    There are ONLY two ways for you to achieve that result.

    One way, which is probably shaker than the other, YOU do the research and act accordingly.

    The other way is MORE likely to achieve the result you desire.

    Hire an attorney to represent your interests, which might involve taking the other party to court.

    If the other party is financially challenged, neither way will do much to assist you.

    Just so you know, even if all you believe is true and you receive a judgment against the other party, the other party can simply file bankruptcy, and your efforts are thwarted.

    A prior poster, @adjusterjack , provided you with useful information, insight, and wisdom.
     
  6. adjusterjack

    adjusterjack Super Moderator

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    How much money? Dollar amount, please.

    What did he buy? A percentage ownership? What percent?

    Would he have been a passive investor or a working part of the business?
     
  7. skyle

    skyle Law Topic Starter New Member

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    $25k, and the full amount they were supposed to pay is $100k. They would get 20% equity as a working partner, otherwise it would just be around 7% as a regular investor.
     
  8. adjusterjack

    adjusterjack Super Moderator

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    Well, I doubt that you will be able to count on this person as a working partner after the squabble about the debt.

    As a regular non-working investor $25k buys a 1.7% interest in the business.

    If you are OK with that just tell him, in writing, that his interest is 1.7% for the $25k he already paid, it's a done deal, he owes you nothing further and this debacle costs you nothing until it's time to share the profits.

    If he doesn't like it he's welcome to sue you to unwind the deal and get his money back. That's unlikely because it will take many thousands for him to sue for $25,000. Money that he doesn't have, and he still owns part of the business.

    OTOH, it would cost you many thousands to sue for $75,000 that he doesn't have. Winning would be a Pyrrhic victory. And, BTW, no court is going to allow you to confiscate his $25,000 without consequence.

    Don't think "what are my rights" think "how do I resolve this at no cost with no litigation." I just told you how.
     
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  9. skyle

    skyle Law Topic Starter New Member

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    Thanks for the insight, but now the investor wants to pull out of the overall investment and get their money back.
    On the investor contract they signed, it states that they can pull out one year after signing that contract and just get a partial of their investment amount back, or if they cease to hold shares anymore, they will only get $300.
     
  10. adjusterjack

    adjusterjack Super Moderator

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    Have you written him yet based on my suggestion? If you haven't, this thing is just going to fester. You need to take a positive step and throw the ball back into his court.

    Dear sir, pal, friend, whatever. I have applied your $25,000 to a 1.7% interest in my company for which you are not to participate. You don't owe any more money. I will not discuss this further. Sincerely.

    Then ignore him.

    How much money do you have set aside for litigating that? It's foolish to rely on that contract when my suggestion is simple and cheap.

    Sure, you risk being sued but I think it unlikely given his financial position.

    But, you do what you want to do. My advice is worth 2 cents.
     
  11. Zigner

    Zigner Well-Known Member

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    The description of the contract makes it sounds as if there's a guaranteed return if the person pulls out. I'm not sure that is an "investment".
     
  12. adjusterjack

    adjusterjack Super Moderator

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    A variable annuity with a stop-loss is an "investment." Just sayin'.

    ;)
     

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