Spw Associates, Llp v. Anderson

• Decision Date: 18 July 2006
• Docket Number: No. 20050205.,20050205.
• Citation: 2006 ND 159,718 N.W.2d 580
• Court: North Dakota Supreme Court
• Parties: SPW ASSOCIATES, LLP, Plaintiff, Appellee and Cross-Appellant v. Douglas H. ANDERSON, a/k/a Douglas Anderson, Jim Stockeland, Michael Ceynar, Defendants and Murdo Cameron, d/b/a Cameron & Sons Aircraft, (f/k/a Flight Training Devices), Defendant, Appellant and Cross-Appellee.

718 N.W.2d 580

2006 ND 159

SPW ASSOCIATES, LLP, Plaintiff, Appellee and Cross-Appellant v. Douglas H. ANDERSON, a/k/a Douglas Anderson, Jim Stockeland, Michael Ceynar, Defendants and Murdo Cameron, d/b/a Cameron & Sons Aircraft, (f/k/a Flight Training Devices), Defendant, Appellant and Cross-Appellee.

No. 20050205.

Supreme Court of North Dakota.

July 18, 2006.

Michael D. McNair, McNair, Larson & Carlson, Ltd., Fargo, N.D., for plaintiff, appellee and cross-appellant.

Larry L. Boschee (argued) and Patrick W. Durick (on brief), Pearce & Durick, Bismarck, N.D., for defendant, appellant and cross-appellee.

VANDE WALLE, Chief Justice.

[¶ 1] Murdo Cameron appealed from a district court judgment determining that SPW Associates, LLP ("SPW"), had lawful possession of an airplane based upon its security interest in the airplane. SPW cross-appealed, claiming the district court erred in ordering SPW to sell the airplane after giving notice to all of the defendants in the action. We affirm the district court's determination that SPW had lawful possession of the airplane under its valid security interest, but we reverse that portion of the judgment ordering SPW to sell the airplane.

I

[¶ 2] Cameron is a commercial airline pilot who is interested in the vintage P-51 Mustang airplane. He developed and manufactured graphite body parts and other components to make replicas of the P-51. He placed advertisements in aviation magazines seeking someone to design and manufacture additional parts and construct the airplanes.

[¶ 3] Douglas Anderson answered Cameron's advertisement and, in 1996, Anderson and Cameron entered into a written agreement to build two airplanes. Cameron was to provide an engine for the first airplane and various other component parts for both airplanes, and Anderson was to design and manufacture additional parts and build the airplanes. Upon the first flight of one of the planes, Anderson was to pay Cameron for the engine, with the price dependent upon the amount of time it took Anderson to build the airplane. Although not expressly stated in the written agreement, Cameron and Anderson had agreed that each would keep one of the two completed airplanes. The parties intended to build additional planes for sale to the public.

[¶ 4] In 1997, Anderson, through his company, Exclusive Aviation, LLP, entered into a loan agreement with SPW to finance the operation. The first airplane was pledged as security for the loan, and Anderson also signed a personal guaranty for the loan. SPW perfected a security interest in the airplane by filings with the State of North Dakota and the Federal Aviation Administration (FAA). Anderson did not disclose to SPW his agreement with Cameron and did not disclose to Cameron the loan transaction with SPW. The second airplane was never built.

[¶ 5] Anderson defaulted on the loan and, on August 18, 1998, signed a "Transfer of Collateral Upon Peaceable Foreclosure and Renunciation" granting possession of the completed first airplane to SPW. In May 1999, Cameron filed a lien against the airplane with the FAA. The lien was twice refiled, and was finally recorded on April 28, 2000.

[¶ 6] SPW commenced this action in 2002, seeking a declaratory judgment that it was entitled to possession of the aircraft and that its security interest was superior to all other liens against the plane. Cameron answered, claiming that his interest in the airplane was superior to the security interest of SPW, and alternatively sought to reclaim possession of the engine and various component parts he had provided for the plane. After a bench trial, the district court found that Anderson and Cameron had entered into a joint venture and that Anderson was authorized to grant SPW a security interest in the airplane, which was joint venture property. The court determined that SPW had a perfected security interest in the airplane superior to any rights of Cameron and was entitled to possession of the plane. The court further held, however, that SPW had failed to notify Cameron of its intent to accept the plane as payment in full on the debt, and SPW was therefore required to sell the airplane in a commercially reasonable manner with notice to all defendants. On appeal, Cameron contends that there was no joint venture and that he was entitled to possession of the engine, propeller, and other component parts he had provided for the airplane. SPW cross-appealed, claiming the district court erred in requiring it to sell the airplane rather than keep it in payment of the debt.

II

[¶ 7] Cameron first contends that the district court erred in determining the agreement between the parties constituted a joint venture.

[¶ 8] North Dakota has historically recognized the joint venture relationship. Voltz v. Dudgeon, 334 N.W.2d 204, 206 (N.D.1983); see Kelly v. Lang, 62 N.W.2d 770 (N.D.1953); Brudvik v. Frosaker Blaisdell Co., 56 N.D. 215, 216 N.W. 891 (1927); Gehlhar v. Konoske, 50 N.D. 256, 195 N.W. 558 (1923). A joint venture is generally considered akin to a partnership, although more limited in scope and duration, and principles of partnership law apply to the joint venture relationship. See Thompson v. Danner, 507 N.W.2d 550, 556 (N.D.1993); Edwards v. Thompson, 336 N.W.2d 612, 616 n. 7 (N.D.1983); 1 Alan R. Bromberg & Larry E. Ribstein, Partnership § 2.06(a) (2006).

[¶ 9] Section 45-15-01(1), N.D.C.C., provides that a partner is an agent of, and may bind, the partnership:

Each partner is an agent of the partnership for the purpose of its business. An act of a partner, including the execution of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority

Under an earlier, similar version of the partnership statute, applying the same agency principles, this Court held that "a chattel mortgage given by a general partner upon partnership property for the purpose of binding the partnership and carrying on the partnership business is valid as between the parties to the mortgage." Maercklein v. Maercklein, 64 N.D. 733, 256 N.W. 180, Syll. ¶ 1 (1934); see also First Nat'l Bank & Trust v. Scherr, 467 N.W.2d 427, 429 (N.D.1991) ("A partner, as an agent of the partnership, normally binds the partnership by executing any instrument that carries on the business of the partnership in the usual way."); In re Wolsky, 53 B.R. 751, 754 (Bankr.D.N.D. 1985) (a partner has the authority to grant a security interest in partnership property). Applying these principles in this case, if Anderson was a joint venturer with Cameron he had the authority to grant a security interest in joint venture property and the security agreement would be valid.

[¶ 10] For a business enterprise to constitute a joint venture, the following four elements must be present:

(1) contribution by the parties of money, property, time, or skill in some common undertaking, but the contributions need not be equal or of the same nature; (2) a proprietary interest and right of mutual control over the engaged property; (3) an express or implied agreement for the sharing of profits, and usually, but not necessarily, of losses; and (4) an express or implied contract showing a joint venture was formed.

Thompson, 507 N.W.2d at 556 (citations omitted); see also Voltz, 334 N.W.2d at 206; In re Cook, 63 B.R. 789, 799 (Bankr. D.N.D.1986). There is, however, no definite formula for identifying the joint venture relationship in all cases, and each case will depend upon its own unique facts. Voltz, at 206.

[¶ 11] In this case there is no dispute on three of the four elements. Both parties made contributions to the enterprise, both exerted a degree of control over the enterprise, and there was a written contract evidencing the agreement. Cameron contends, however, that there was no evidence showing an agreement, either express or implied, to share profits.

[¶ 12] In this case the parties admittedly contemplated building additional airplanes for sale to the public, and evidence was presented at trial indicating it would not have been economically feasible to design and construct the necessary molds, dies, and tooling for only two airplanes. The parties' written agreement also expressly recognized that additional planes would be built for sale. For example, the agreement provided that Cameron would provide computerized documentation and lab test results on composite parts he manufactured to Anderson "and future aircraft purchasers," and Anderson was to "develop an inspection and documentation process on the first two airplanes, and all future airplanes purchased." The agreement further provided that construction of "all appliances" to be used in the manufacturing process "will be such that they can be used for multiple year production runs." Under these circumstances, where the parties entered into a relationship to build airplanes and expressly contemplated further sales of planes to third persons, the trial court's conclusion there was a joint venture necessarily implied an agreement to share profits.

[¶ 13] Cameron contends it was his intent to be merely a parts supplier, and that his only profit would be from sale of component airplane parts to Anderson. The agreement between the parties, however, expressly recognizes a much broader, on-going role by Cameron in the construction of the airplanes. The agreement does not merely envision that Cameron will sell parts to Anderson, but creates reciprocal duties and obligations between Cameron and Anderson in the design and manufacture of component parts and completed airplanes.

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