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Paperwork Still Counts. Don't Start a Deal Without it,...Signed!!!

Tribeca negotiated the purchase of a portfolio of loans secured by real property, for $47 million. The contract required a $1 million deposit which would become non-refundable liquidated damages upon the waiver of contingencies. Tribeca negotiated a joint venture agreement with its investor who would fund the $47 million, except he had only $16 million. He was waiting for financial information determine whether he could borrow the missing $31 million. He did not sign or have his company sign the joint venture agreement while waiting. He did wire $1 million to First American Title. No instructions accompanied the wire transfer. Tribeca told the escrow officer's assistant that it was for the deposit for this escrow, and that's how First American entered it, even though it had no escrow instruction from the owner of the money to do so. Tribeca was too busy negotiating with First American over a $950.00 handling fee and an indemnity clause.

The deposit became non-refundable as liquidated damages, against Tribeca. Sure enough, the investor decided NOT to invest. He had not signed ANYTHING. So when he asked for his money back, after considerable agonizing, the title company returned it to him. And Tribeca still owed the seller $1 million in liquidated damages.

First, the trial court and the appellate court both agreed that the title company had done the right thing. Without an instruction that the $1 million was for a particular escrow transaction or subject to direction by Tribeca or its not-yet-created joint venture, it still belonged to the individual who wired it to First American. Since that individual had not signed anything binding or tying him to Tribeca, the joint venture or the loan purchase agreement, First American was duty-bound to return the money upon request by the person who had wired it.

Tribeca sued First American for breach of contract, negligence, and breach of fiduciary duty. There was no contract, because Tribeca refused to sign First American's standard escrow instructions, over the indemnity clause and a $950.00 fee. The Court of Appeal called out the $950.00 fee dispute, specifically. The trial court and the Court of Appeal found there was no negligence, because Tribeca had no rights regarding the $1 million wired by the individual.  

Finally, since Tribeca had not signed escrow instructions with First American and had not delivered any money or anything else to First American, there was nothing about which there could be any fiduciary duty. 

Investors should not take much comfort in this decision. An oral agreement to invest is enforceable, if it can be proven. In this court of appeal decision, no allegations were described that the individual who wired the $1 million ever agreed to anything. If Tribeca could have proved that the investor had committed, even orally, the outcome of this case might have been different.

For brokers, syndicators, and other deal-makers, the lesson is obvious and tiresome. It's not a deal until your investor signs. No matter what an investor says, no matter how much money an investor delivers or deposits, don't count on it and don't waive contingencies, until your investor signs in writing. Tired of hearing it? It just happened to a company over $47 million, and cost Tribeca $1 million plus six-figures in attorney fees.

Paperwork, especially signatures, count. 

If your attorneys can't keep up with the pace of your transactions, give us a try. Your deal will be the most important one in our office, and we'll apply as much time and as many attorneys as it takes to get your deal done on time.

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