Legal Updates

One who owes funds to a disbanded partnership is not exempted just because the partnership disbanded

April 3, 2022

The lawyers partnership provided services to the project where the majority of the payment was deferred until the stage where the project could finance the service, at an interest rate of 18% per annum. After about a year of providing services, the project changed service provider and after about 6 years, one of the partners in the partnership, which has since disbanded, demanded that the debt be paid regardless of the success of the project. The project claimed that a partner in a disbanded partnership could not claim the debt but only the partnership and also that the project's CFO did not pay attention to the interest rate and would not have agreed to such interest, and in any case there is no room to pay the full debt because most of the project failed.

The Court held that the partnership is to pay the debt and the contractual interest should be honored. The partnership dissolution agreement stipulates that each partner can sue on behalf of the partnership and insofar as there is a dispute between the partners it has nothing to do with the right to sue the project except the fact that the project will not be required to pay twice for the debt. The content of a contract can be anything that the parties to the contract agree upon and it will be interpreted according to the intention of the parties implied by the written wording. In our case, the contract and its terms were signed after long negotiations and a person signing a document is held to have read and understood what he has signed. The language of the agreement is clear and does not condition the payment of a fee on the full success of the project. A contractual obligation that does not have a set time for its consummation should be consummated within a reasonable time. The agreed interest rate is also a reasonable interest rate, as it made sense to agree on the interest rate, as the service provider took a risk that if the project is canceled, it will not receive payment and therefore there is room to respect the high agreed interest rate. An error in the profitability of a transaction does not justify amending the agreement.