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Florida Investment Company’s Subscription Agreement Survives Investor’s Enforceability Challenge

buildingWhenever you sign any type of contract, it is important to ensure that you fully understand exactly what you are bargaining to get, especially when you are contracting for something that involves an element of financial risk, such as an investor who contracts to invest in a business venture. As an entity offering such investment opportunities, it is important to ensure that the contractual agreements you create are written in such a way that they will survive a legal challenge from a disgruntled investor. Both of these perspectives highlight the importance of working with skilled Florida business counsel when dealing with investments.

An example of a contract that was able to survive an investor’s court challenge was one used by a South Florida LLC that, in 2013, extended an offer seeking “accredited” investors to invest in a business venture. The business venture was a purchase of a commercial building in downtown Miami and the conversion of that building into office and retail space. In order to participate, the LLC required potential investors to sign a subscription agreement.

In August 2013, Keren signed a subscription agreement. The agreement required her to pay 10% at execution, 20% within 30 days, and the remaining 70% 30 days before the closing date of the purchase of the downtown building. The LLC made the deal for the building and notified investors that the closing date was Jan. 15, 2014. The LLC informed Keren that she still owed $2.47 million. The investor could not make the payment and asked for more time. The LLC offered to connect her with another investor who would advance her the money, but she refused the loan.

The LLC sent Keren a default letter. The developer on the project paid an amount of money equal to the shortage created by Keren’s non-payment. The sale closed on Feb. 28, 2014. As a result of Keren’s default, the LLC kept her initial payment she made when she executed the subscription agreement, which was $565,000.

The investor tried to use the courts to get her $565,000 back, arguing that the subscription agreement was unenforceable, but she was not successful. Both the trial court and the court of appeal rejected her argument that the contract lacked the degree of mutuality required by law to make a contract enforceable.

The basis of the investor’s mutuality argument was her claim that the agreement allowed the LLC to perform or decline to perform its obligations under the contract at its sole discretion. If that were true, the LLC’s promise to perform would be illusory, and the contract would be unenforceable.

The promise was not illusory, however. As the court explained it, the LLC “promised and delivered to all subscribers…the right to participate in the business venture. Ultimately, the business was successful and those members who fully performed their side of the bargain were rewarded with title to condominium units as a return on their investment.” Keren failed to reap a similar reward only because she didn’t pay as she had promised in the agreement. That was not a flaw in the subscription agreement; that was merely her failure to perform.

For your real estate and commercial transaction needs, look to the knowledgeable South Florida business attorneys at Stok Folk + Kon. Our attorneys have been helping business clients with a wide array of legal needs for many years and are ready to discuss your matter with you.

Contact us online or by calling (305) 935-4440 to schedule your consultation and find out how this firm can help you protect your interests.

More blog posts:

Two Little Words: How Even a Single Word Pair Can Make All the Difference in Your Florida Forum Selection Clause, Florida Business Lawyers Blog, Nov. 10, 2017

Stok Folk + Kon Client Secures $8M Award in Breach of Contract Litigation Victory, Florida Business Lawyers Blog, May 18, 2017

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