Legal Question in Business Law in New York

Promissory Note - Full Principle Not Provided

I started a company in 1997 which has since gone out of business. When forming the company we sought outside funding and I personally guaranteed.

The person who loaned the money to the company failed to provide over 60% of the funds as specified in the original Promissory Note. The loaning party admits that they did not provide the full amount as indicated in the Promissory Note.

After we signed the Promissory Note and received the initial installment from the loan we proceeded to sign long term lease agreements for equipment, etc., which I also guaranteed based on the above Loan Agreement.

In the end, without the additional installments, the company was unable to generate sufficient cash flow to remain in business and the company soon after closed it's doors.

The person who made the original loan is now threatening to sue to force repayment of the small percentage of the Principle he provided to the company. He sites my guarantee as the basis for his claim.

As a result of his failure to provide even 40% of the sum detailed in the original promissory note, am I liable in any way for the small percentage he provided?


Asked on 1/06/02, 5:20 pm

1 Answer from Attorneys
Joseph Heppt The Law Offices of Joseph M. Heppt

Re: Promissory Note - Full Principle Not Provided

Based upon the facts given, it appears that your lender breached the loan agreement by failing to advance the full amount of the loan. Its breach seems to have led to the failure of your company and, arguably, the lender should be liable for all damages that flow from that including the cost of equipement, etc.

However, there are numerous questions that need to be answered before I can say that you have a viable claim for breach of contract. For example, was the loan agreement in writing or verbal? Why did the lender not advance the full loan amount? What notice, if any, was given by the lender that any installments would not be made? What notice, if any, was given to the lender that its failure to advance funds was impacting negatively on cash flow?

These are but a few of the questions that would need to be addressed before your questions can be answered in any meaningful way. Please feel free to contact me to discuss this further. Good luck.

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Answered on 1/07/02, 11:05 am


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