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to Cascade and also refused to guarantee a bank loan to the
corporation.
Cascade obtained its first line of credit in 1981. The
credit limit was $100,000, which was further limited to the value
of, and secured by, Cascade's accounts receivable and its
inventory of finished goods. Amounts advanced under the line of
credit bore an annual interest rate of 22.5 percent. The
corporation was generally averse to incurring debt because the
high rate of interest made it difficult for Cascade to make a
profit on borrowed money. Instead of borrowing, the corporation
retained its earnings to self-finance its working capital
requirements.
The board of directors and the corporate officers considered
that the best use of the corporation's working capital was to pay
its labor force and the various materials suppliers and to
increase its manufacturing capability with larger facilities and
improved production equipment. Consequently, the officers'
salaries were often in arrears, and Cascade did not make all the
quarterly payments due Lea under the 1979 sales agreement. By
December 31, 1982, Cascade owed Lea $259,128 in delinquent
payments.
Lea's Demand for Payment and the 1982 Agreement
Lea did not make a written demand for payment; however, the
minutes of the officers' meetings on March 31 and September 23,
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