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  1. #1

    Default Late Payment of Installments on Debt from a Business Acquisition

    My question involves business law in the state of: NY.

    Two years ago I agreed in arbitration to sell my share of a wholesale and retail business to the other member of the LLC. The products are consumer products. Because the other party claimed he didn't have enough funds to settle the agreed price at once, we included in the agreement payment clauses that split the amount into a 50% cash portion and a 50% inventory portion. The agreement gives me the right to resell the inventory for profit. The payouts are spread in 16 payments each quarter over four years. For the inventory portion of the settlement from time to time I order the inventory which is then shipped to me. If I exceed in my order the inventory allowed quarterly by the settlement I pay cash.

    For late payments of the cash portion of the settlement, we agreed to a 15-day grace period, and interest equal to the 1-year LIBOR rate plus 2%. We also had a final clause that any controversy about the agreement shall be settled by arbitration. It now happens that the payments are always late, and I add a penalty: right now they are three months late, but the LIBOR is only 1.94% per year so the total interest is 3.94% per year, and over three months it amounts to a meager 1% of the amount owed. This is probably less than what it would cost them borrowing money from the bank. So I suspect that they are late because I'm cheaper than the bank. At the time of negotiating the agreement I had asked for a higher late payment interest, but the arbitrator convinced me that it was customary business practice to keep it at that level.

    What legal recourses do I have, other than filing another Arbitration proceeding?

  2. #2
    Join Date
    Oct 2016
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    2,005

    Default Re: Late Installments of Agreement Payments

    Other than interest payments does the arbitration agreement say anything about if the other party is in default or limit your actions if they are? Does it require further arbitration or does it allow you to sue?

  3. #3

    Default Re: Late Installments of Agreement Payments

    The only language included to that extent, says:
    Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in New York, NY conducted before a sole arbitrator. (follows additional language about Federal Arbitration Act etc. and ending with "Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.") ...

  4. #4
    Join Date
    Oct 2016
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    Default Re: Late Installments of Agreement Payments

    Sounds like you need to head back to arbitration and claim they are in default.

  5. #5

    Default Re: Late Installments of Agreement Payments

    PayrolGuy, thanks for confirming that.

  6. #6

    Default Re: Late Installments of Agreement Payments

    The arbitration was practically an agreement by party A to sell to party B his share of company C in exchange for money and goods, in quarterly installments. If there is a breach of agreement, because party B stops installments before reaching the mid point, could party A request the reversal of the sale and return of ownership? I'm thinking of this because having to surrender sole ownership could represent a big threat to party B, and be more convincing than another round of arbitration.

    Also if one party ignores arbitration outcomes, what's the point of it? There must be a federal/state law that allows one party to enforce arbitration, or to punish the infringing party with some applicable law. Is there?

  7. #7
    Join Date
    Mar 2013
    Posts
    16,051

    Default Re: Late Installments of Agreement Payments

    Quote Quoting gciriani
    View Post
    The arbitration was practically an agreement by party A to sell to party B his share of company C in exchange for money and goods, in quarterly installments. If there is a breach of agreement, because party B stops installments before reaching the mid point, could party A request the reversal of the sale and return of ownership?
    Anybody can ASK for anything.

    But contracts don't get voided and/or reversed just because one side paid late.

    You're pretty much stuck with the terms of the contract and whatever remedies are specified in the contract. The purpose of arbitration is to interpret the contract, not change it.

    Quote Quoting gciriani
    View Post

    Also if one party ignores arbitration outcomes, what's the point of it? There must be a federal/state law that allows one party to enforce arbitration, or to punish the infringing party with some applicable law. Is there?
    No.

    The penalties should have been built into the contract.

    For example, do you have an acceleration clause in the contract? One that says if you default on the payment the entire balance becomes due and payable. Then you can go to arbitration for the entire balance, get a judgment for that amount and enforce it just like anybody else who has a judgment against somebody.

    If you don't have an acceleration clause, you go to arbitration for the arrears, get a judgment and enforce it just like anybody else with a judgment.

    You are free to seek a remedy other than money. You can ask the arbitrator to award you enough inventory that would cover the amount owed rather than having the iffy ability to actually get money out of your ex partner.

    Understand that arbitration has a process and result similar to a lawsuit, except that it doesn't involve court.

  8. #8

    Default Re: Late Installments of Agreement Payments

    Quote Quoting adjusterjack
    View Post
    You're pretty much stuck with the terms of the contract and whatever remedies are specified in the contract. The purpose of arbitration is to interpret the contract, not change it
    I think I confused the terms arbitration with mediation, because I haven't dealt with this matter for several months. We had a mediation, and that resulted in signing an agreement. Now the terms of the mediation agreement are not being fulfilled. So I have to start another arbitration round to resolve the dispute, if I understand. There is no acceleration clause; the mediator only suggested 2% interest above 1-year LIBOR (which right results in an interest of 4.8% per year). Does this suggest that the mediator favored the other party?

    What I'm worried is that if I start a new arbitration process, and then either through mediation or arbitration we end up with a new injunction, what is the incentive of my adversary to start paying, if there is no legal consequence, and only legal fees to pay?

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