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Three partners have an agreement to build a "spec" home and

Customer Question
split the resultant profit or...
Three partners have an agreement to build a "spec" home and split the resultant
profit or loss, whatever the case may be, upon sale of such home. No written
agreement exists between the partners with the exception of a verbal agreement
to split the expenses/profit/loss equally. Throughout the course of
development, the three partners contributed substantially different amounts of
the cash required to develop the "spec" home and see the project through to
completion. One partner believes interest should be paid on these cash
contributions. Two partners believe no interest should be paid. The project
has been completed and is being sold at a loss. Knowing that our only agreement
was to share equally in the expenses/profit/loss of building a "spec" house, would interest
normally be paid?
Submitted: 8 years ago.Category: Business Law
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Answered in 1 hour by:
10/7/2009
Business Lawyer: Richard, Attorney replied 8 years ago
Richard
Richard, Attorney
Category: Business Law
Satisfied Customers: 56,021
Experience: 32 years of experience practicing law and a businessman.
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Good morning....This is a little more complex than whether or not interest should be paid. The oral agreement was that all three partners would contribute equally. This obviously did not happen. If it had happened, then the question of interest would be moot since everyone would be equal. Since there were unequal contributions, the partners who contributed more than their 1/3 share actually have a claim against the partner or partners who contributed less than their 1/3 share in amounts that would cause them to have given equally. Should they bring this claim, interest would most likely be awarded on the judgment. As a result, even though your oral agreement does not mention interest, the partners not contributing their share would be well advised to pay interest to avoid a lawsuit resulting in them paying both interest and the deficit amount of their contribution.

 

 

I hope this has given you the guidance you were seeking. I wish you the best of luck!

 

 

 

The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

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Customer reply replied 8 years ago
The partner who currently has the smallest contribution is the one who wants to pay interest because his contributions occurred earlier, hence he has more to gain. He also had access to the check book and paid himself back before the others received any money. I guess a simpler question would be, Should interest be paid before principle investments are returned?
Business Lawyer: Richard, Attorney replied 8 years ago

Interest is normally paid before principal. The partner who paid the smallest amount has got himself in a bit of a pickle. One, he breached the agreement because he did not contribute his fair 1/3 share. Two, he breached his fiduciary duty to the partnership and the other partners by giving himself preferential distributions. The other partners have a couple very valid lawsuits against this partner for those breaches. He is in no position to be dictating what happens here.

I hope this has given you the guidance you were seeking. I wish you the best of luck!

 

 

 

The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

 

 

 

Richard
Richard, Attorney
Category: Business Law
Satisfied Customers: 56,021
Experience: 32 years of experience practicing law and a businessman.
Verified
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