Legal Updates

In the absence of a written agreement system the financial conduct and economic interest of the parties will be examined

September 4, 2022

Investors transferred sums of money to company owners, based on acquaintance and prior friendship between the parties, for the purpose of the company's activities. The investors contended that the funds were transferred as a loan which the shareholders of the company are required to repay, while the shareholders contended that the funds constitute a business investment in a joint business endeavor that is not required to be returned.

The Court held that the sums transferred were a loan extended to the shareholders of the company which they are required to repay in full. In the absence of written documents, it is difficult to classify the transfer of funds as a loan or as an injection of capital and the intention of the parties must be traced pursuant to their financial conduct at the time the funds were transferred and the economic logic that reflects the interests of each of the parties. When there are friendly relations between the parties and it is not possible to separate the friendly conversation from conversation of a more business nature, the total weight of the correspondence for the purpose of creating a contractual obligation is low. Here, while no fixed dates were set for the repayment of the loans, the transfer of the funds at different times and in varying amounts, to different accounts, and in an irregular manner, as well as the fact that the conversation about a joint venture was a prospective conversation that never came to fruition, indicate that the intention of the parties was to grant a number of loans as opposed to an investment in a joint venture, and therefore the shareholdres of the company must repay the loan amounts.