A recent summary judgment ruling sheds light on the importance of reading releases and the distinction between personal and corporate debts. The dispute revolved around whether the defendant owed the plaintiffs $128,538 as a personal debt, or whether the amount, purportedly owed by the defendant, was covered by a release signed by the plaintiffs.
The dispute originated from the sale of two closely held corporations. The plaintiffs and the defendant were shareholders in the corporations. After the sale had been negotiated, the plaintiffs requested payment of a prior unrelated debt from the defendant and the other minority shareholders. After several meetings, all the shareholders agreed they would be responsible for their proportional share of the prior debt.
All the shareholders, including the plaintiffs and defendant, signed a spreadsheet that recognized the buyer was purchasing 55% of the company at closing, with the remaining 45% to be paid over a four-year period, contingent upon the achievement of certain performance targets. Due to the failure to meet the targets, the defendant ultimately received only a nominal $1.00 for his remaining 45% interest.
Subsequently the plaintiffs sued the buyer and the defendant over funds owed to them from the sale. The plaintiffs settled with the buyer and signed a release including all shareholders of the two purchased corporations. The plaintiffs then contended the defendant personally owed them $128,538, and the debt was not covered by the release. The court determined there were no documents describing the debt as a separate personal obligation of the defendant. Applying Indiana Trial Rule 56, the court held there was no genuine issue of material fact to be resolved by a trial. The court ruled that the debt in question was not a personal debt but rather a shareholder’s obligation, payable upon receipt of proceeds from the anticipated buyout of shares. The plaintiffs had previously settled with the buyer and released all the shareholders from any claims that predated the sale. The court concluded that the release covered the defendant and as the defendant received only a nominal payment for his remaining 45%, summary judgment was appropriate.
In conclusion, the court granted a summary judgment in favor of the defendant, thereby delineating the differences between personal debts and obligations arising from shareholder agreements. The ruling underscores the importance of clear documentation in establishing the nature of financial obligations, especially in complex corporate transactions. The ruling is also a reminder that any document containing a release should be reviewed by competent legal counsel.