Whatever the story, verify the facts before engaging in business with someone.
A recent Utah Supreme Court case was completely preventable if a party would have engaged in some simple due diligence. Wittingham v. TNE Limited Partnership. I'm not exaggerating on the simple part . . . .
Probably ten minutes or less of verification could have saved
hundreds of thousands of dollars (if not, millions when considering litigation expenses), as well as,
years in time and resources.
So, what happened? Here's the basic facts:
A guy said he needed some money to release an encumbrance on some apartments his company owned - problem is that there was no such encumbrance and his company didn't own the property. There happened to be some collusion with another guy to make it sound like there was.
A "well meaning company" loaned him the $435,000 he asked for - without verifying the facts.
Of course, the company that actually owned the property found out, sued to void the transaction. Trial court agreed with the company that owned the property - so the "well meaning company" was out.
Of course, it doesn't end there. There was an appeal and the Utah Supreme Court concluded that it was voidable - not void.
So, the "well meaning company" may not be completely out. The case was remanded back to the trial court.
Some may think, "the good guy wins" meaning the "well meaning company" . . . .
The cost of litigating this . . . likely far exceeded the amount of the loan and has taken years to litigate. In fact, its still not over. In no way would I call this a "win," the most I could say is a best case scenerio under the circumstances.
What expensive lessons can you learn for free from their experience?
Before lending $435,000, if TNE Limited Partnership would have verified the entity and asset ownership by:
1) Asking where the entity was registered,
2) Verifying that was true or not (easy to do on state websites), and
3) Checking the county property records to verify it was owned by the entity (also easy to do on county websites) . . . .
Since TNE didn't take these simple steps, TNE was not aware that the entity had been
- Administratively dissolved two years earlier, and
- The asset's successor-in-interest was Wittingham, LLC
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