Article courtesy of Jeff Dutson of King & Spalding
Individual shareholders signing a pledge agreement in their personal capacity agreed to be held personally liable for all amounts due under a loan agreement, including at the statutory rate of interest.
DSLRPros, Inc. v. Lalo, — So.3d –, 2021 WL 5348890 (Nov. 17, 2021)
An individual, Eyal Lalo (the “Lender”) provided two companies, DSLRPros, Inc. and Tayzu, Inc. (together, the “Companies”), with $750,000 pursuant to a loan agreement (the “Loan Agreement”). The Loan Agreement was signed by Donald Scott, as an officer of the Companies, and required repayment within 180 days at an annual rate of interest of 3%. In addition, Donald Scott and Aarthi Scott (the “Scotts”) signed a pledge agreement (the “Pledge Agreement”) in their individual capacities. Among other things, the Pledge Agreement required the Scotts—who together owned 100% of the equity of the Companies—to pledge 9% of each Company as collateral.
The Companies defaulted by failing to make any payments under the Loan Agreement, and the Lender sued for breach. The Lender asserted claims against the Companies for breach of the Loan Agreement, and against the Scotts for breach of the Pledge Agreement. Because both Companies had sold all of their assets and dissolved, the Lender argued that the Scotts were personally liable for the full loan amount under the Pledge Agreement. The trial court ultimately granted the Lender’s motion for partial summary judgment, finding that the Scotts were personally liable for the outstanding loan amount. Following a post-judgment motion from the Lender, the trial court also ruled that the statutory rate of interest (which exceeded the contract rate) applied to the amounts owed. The Scotts appealed both findings.
On appeal, the District Court of Appeal of Florida affirmed the trial court’s rulings that the Scotts were personally liable for the loan amount under the Pledge Agreement and that statutory interest was appropriate. With respect to the Scotts’ liability, the court noted that one of the stated purposes of the Pledge Agreement was to “secure full and prompt payment when due of the principal, interest and all other amounts payable under the Loan Agreement….” Furthermore, the court found that the provision governing remedies upon default stated that the Lender would be entitled to “sell any or all of the [p]ledged [s]hares and, if any of the [obligations] remain unsatisfied following such foreclosure, to seek payment of such unsatisfied amount from [the Scotts] pursuant to the terms of the Loan Agreement.” The court held that this language was unambiguous in requiring the Scotts to personally pay any amounts due under the Loan Agreement. The court held that the Lender’s failure to foreclose on the pledged shares was irrelevant, as Donald Scott had testified in a deposition that the shares would have been worthless given that the Companies had sold their assets and dissolved.
Finally, the court ruled that the imposition of statutory interest was appropriate. The court noted that while statutory interest was the default, it could be modified by contract. However, the Loan Agreement only stated that the obligations would bear interest at 3% “from time to time”. The court determined that it was not clear what “from time to time” meant and agreed with the trial court that the Loan Agreement did not provide for a specific post-maturity or default interest rate. Therefore, the court held that the application of statutory interest was appropriate.