Opinion ID: 11175
Heading Depth: 2
Heading Rank: 3

Heading: The Joint Venture Loan

Text: 6 In 1985 Harvard had a 10% interest in the Plano-Shiloh Joint Venture (the Joint Venture), which purchased and operated a strip mall in Plano, Texas. By March of 1986, the Joint Venture was not self-sustaining and each partner was requested to contribute additional capital. The Joint Venture experienced a loss in excess of $81,986 in 1986, and by 1987 was still losing money. When the Joint Venture decided to refinance with a different lender to reduce interest expenses, Harvard volunteered to assist in having the note refinanced at Bonham where, as stated earlier, he was a director. Harvard solicited John Armstrong, then a bank officer who had risen to chairman of the board by the time of trial, and assured Armstrong that the loan was performing and that the shopping center was cash flowing. Armstrong also asked for and received assurance that an appraisal substantiating the value of the Joint Venture property would be provided. 7 The Board of Bonham approved the loan. Although Harvard did not vote on the loan, the directors were well aware that Harvard was the chairman of Bancshares, Bonham's holding company. Additionally, on at least one occasion, Harvard reminded Warren Jamieson--president and chief executive officer of Bonham--of Harvard's control of Bonham and his ability to replace Jamieson. In extending the loan to the Joint Venture, Bonham required personal guarantees of the individual joint venture participants. On May 29, 1987, the title company forwarded all documents for the loan, including the guarantees, to Nancy Long, Harvard's then-secretary at Willow Bend. 2 Oddly, the guarantee agreements showed the Joint Venture to be indebted to Willow Bend, not Bonham. Harvard was aware of these defects of the guarantees. 8 After closing on the loan with Bonham, Brenda Brown, a one-percent participant in the Joint Venture and an employee of the Joint Venture's management company, was instructed by her boss at the managing company to write a check in the amount of $10,640 (one percent of the loan amount) payable to Harvard and to call it a consulting fee. This payment to Harvard was not disclosed on the settlement sheet to Bonham nor was it disclosed by any of the other partners of the Joint Venture.