Wednesday, December 3, 2014

Joint Ventures and Partnerships in New Jersey

The New Jersey Appellate Division recently dealt with a case involving the presence (or in this case, the lack thereof) of a joint venture or partnership, and the legal standards applied to those claims. The establishment of a joint venture or partnership can often be a tricky case that needs to be handled with care when brought before a court.

In Jones v. Belwood Aromatics, Inc., after the Plaintiff was fired, he claimed that he was entitled to an equity interest in Belwood based upon the statements of Defendants, which he claimed formed the basis for a finding that there was a joint venture or partnership between the parties.

The Appellate Division examined partnerships and joint ventures,
"The burden of proving the existence of a partnership was upon plaintiff, who alleged it . . . ." Lohmann v. Lohmann, 50 N.J. Super. 37, 45 (App. Div. 1958), certif. denied, 31 N.J. 187 (1959). A partnership is "an association of two or more persons to carry on as co-owners a business for profit . . . ." N.J.S.A. 42:1A-2. "[A] joint venture is virtually identical to a partnership, [although] its objective as a business venture is more limited. Presten v. Sailer, 225 N.J. Super. 178, 191 (App. Div. 1988). A partnership or joint venture need not be formalized in writing, and can be inferred from conduct. Id. at 191-93; Ruta v. Werner, 1 N.J. Super. 455, 460 (Ch. Div. 1948). The elements of an inferred partnership or joint venture "include agreement, sharing profits and losses, ownership and control of the partnership['s] property and business, community of power, rights upon dissolution and the conduct of the parties towards third persons, among others." Kozlowski v. Kozlowski, 164 N.J. Super. 162, 171 (Ch. Div. 1978), aff'd, 80 N.J. 378 (1979). Here, plaintiff argues that: (1) through his labor, he contributed to Belwood; (2) Beldner paid plaintiff fifty percent of Belwood's profits; (3) Beldner offered plaintiff a share in Belwood's sale price; and (4) Beldner often referred to plaintiff as a partner.
The court found that despite the Plaintiff’s arguments, he had been compensated for his labor through salary and bonuses, the bi-monthly payments were not profit sharing, the alleged verbal offers were not legally sufficient to give Plaintiff an interest in the company and that the promise was “illusory”, which the Court explained is 
An apparent promise, which according to its terms makes performance optional whatever may happen, or whatever course of conduct in other respects he may pursue, is in fact no promise, although often called an illusory promise. [Curtis Elevator Co. v. Hampshire House, Inc., 142 N.J. Super. 537, 542 (Law Div. 1976) (emphasis omitted) (citations omitted).] Illusory promises are disfavored, and courts will attempt to infer reasonable contract terms. Ibid.
The Appellate Division concluded, 
The remaining elements of a partnership weigh against a finding that Belwood was a partnership or joint venture. The parties never reached a formal written agreement. Plaintiff lacked authority or control over Belwood. He did not contribute financially to Belwood, and he did not own or control Belwood's property. As noted previously, he never accepted any legal or economic liability for Belwood. Lastly, plaintiff repeatedly undermined Belwood by working for its competitors, even against Beldner's express prohibition, and by seeking to sabotage the company after his termination. Accordingly, we affirm the trial court's conclusion that plaintiff failed to establish a partnership or joint venture, and thus we affirm the dismissal of plaintiff's complaint.
The full text of the opinion can be found here.

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