Kaufman v. Catzen S.

• Decision Date: 11 April 1922
• Citation: 90 W.Va. 719
• Court: West Virginia Supreme Court
• Parties: L. Kaufman v. Aaron Catzen et als.

90 W.Va. 719

L. Kaufman

v.Aaron Catzen et als.

Supreme Court of Appeals of West Virginia.

Submitted March 1, 1922.

Decided April 11, 1922.

1. Joint Adventures Where One of Two Lessees Furnished all the Money to Develop Property, He is Entitled to Reimbursements from Net Profits.

Where one of two lessees accepts a lease of land to be converted into a profit producing investment and concedes to the other a one-third interest in the profits to be derived from the joint enterprise in consideration of the payment by the latter of a stipulated amount which he does pay, coupled with the assurance of an additional amount, which he does not furnish, to develop the property, and the lessee named in the lease does advance it, he is entitled to reimbursement out of the earnings of the enterprise, in the ascertainment of the amount of the net profits "derived from the enterprise. (P. 721).

2. Same Not Entitled to Appropriate Profits for Salary in Absence of Express Agreement.

In such case the lessee named in the lease, though the active manager of the leased premises, can not lawfully appropriate part of the revenues derived from the property for his own use, in the payment of a salary, in the absence of an express agreement to that effect. (p. 724).

3. Same Agreement Between Lessees Held Not to Entitle Manager to Salary.

Where there is no such agreement, and the lessee so named agrees to assume control and management of the property for and in behalf of himself and his associate in the enterprise upon the condition that his "energy" shall off-set interest on the amount so advanced and expended, the lessee so named is not entitled to and can not demand payment of a salary. (p. 724).

4. Same One Supplying All the Funds to Improve Property is Entitled to Reimbursement Before Distribution of Profits.

Funds derived from the sale of the capital stock of a corporation, organized by the active party to a lease contract, made to supply funds necessary to improve the property leased, his co-lessee having promised to provide such funds, but having failed or refused to provide them, should be repaid, with interest thereon, out of the earnings derived from the property before a distribution of profits, if any result from the enterprise. (p. 724).

5. Same Damages Not Allowed for Defendant Joint Adventure's Antagonistic Delay of Property Improvement.

A case in which damages charged to the antagonism of one of two lessees against the other, said to have delayed the improvement of the property, are discussed but not allowed. (p. 728).

(Ritz, Judge, absent.)

Appeal from Circuit Court, McDowell County.

Suit by L. Kaufman against Aaron Catzen and others. Decree for plaintiff, and defendants appeal.

Reversed and remanded.

Russell 8. Ritz and Sanders, Crockett, Fox & Sanders, for appellants.

D. J. F. Strother and Chapman, Peery & Buchanan, for appellee.

Lively, Judge:

The opinion delivered upon a former appeal, then as now Aaron Catzen, Clark Development Company and L. H. Clark being appellants, settled the principles of the cause as developed by the proof theretofore taken. Kaufman v. Catzen, 81 W. Va. 1, L. E. A. 1918-B. 672. One of the questions discussed, as applied to the facts involved at that time, was as to the validity of Kaufman's claim to a one-third interest in the profits derived and derivable from the control, management and improvement by Catzen of the 44 acres of land leased in the name of Catzen from Northfork Realty Company August 27, 1907. This claim the opinion sustained, notwithstanding Kaufman's refusal or failure to provide the $20,000.00, as he assured the lessor's officers he Avould do, to aid in the improvement of the property, so as to convert it into a profitable investment, and also notwithstanding Catzen's incorporation of Clark Development Company, and his assignment of the lease to that company, Catzen being the owner of a controlling interest in the company and its general manager. Nevertheless Kaufman was to be held liable in a settlement of the accounts arising out of the management of the leasehold, and especially for any delays in its development caused by his opposition to the efforts of Catzen and the corporation, upon whom fell the financial burden of its betterment for the purposes of the lease, to obtain a saloon license.

It is shown by this record and the former one that the basic object of Kaufman and Catzen in securing this lease was to establish saloons on the lease, and incidentally to improve it as a town site. Kaufman did not desire to be known in the lease, and an agreement was entered into between him and Catzen for the purpose of showing their joint interests therein. The $30,000.00 paid by Kaufman to the Northfork Realty Company as rentals for 5 years was his contribution to the adventure, for which he was to have a one-third of all the rents, issues and profits arising from the use and occupancy of the land. Catzen was to have control and management of the enterprise. Catzen had very little money, and it is not clear from what source the money for the develop merit was to be derived. Catzen says Kaufman was to eontribute $20,000 for that purpose, but that fact does not appear in the agreement, It was omitted, Catzen says, at Kaufman's request. Afterwards Kaufman wanted the contract changed so that he would have equal authority in determining the erection of buildings, and in the management and control of the property; and further, that he should be paid back his $30,000.00 out of the rents, issues and profits and retain his 1-3 interest in the profits. Catzen would not agree to this radical change, and thereupon the differences arose, culminating in this litigation. From that time Kaufman seems to have made diligent effort to thwart the enterprise. He tried to prevent Catzen from procuring liquor license, and succeeded in doing so for several months. He did not contribute the $20,000.00, nor any sum. Catzen went to work to develop the property, and, between the year 1907 and September 1st, 1912, he spent about $63,000.00 in building retaining walls, laying out streets, constructing water works, building houses and generally in improvement of the property. Of this sum he obtained $20,000 from his brother, Morris Catzen, $20,000 from the Flat Top National Bank, $10,000 from Dr. Clark, and the remainder from sales of his and his wife's property, savings of his children, and from his business, presumably his saloon business. When the development company was incorporated and took over Catzen's interest in the enterprise on September 1, 1912, $30,000 of its stock was issued to Morris Catzen which represented the sums contributed by him, he having assumed and paid $10,000 of the bank debt, and $10,000 stock to Dr. Clark, representing the sum contributed by him. The other portion of the bank debt, $10,000 had been paid by Catzen out of the rents collected up to that time. As a result of Catzen's efforts, ground rents were obtained, business houses, hotels and dwellings were erected, all bringing in rents, and the premises were incorporated as a municipality. Kaufman contended that he was to have this $30,000.00 advanced by him repaid before any profits were divided, and then he was to take 1-3 of the profits afterwards made. He seems to have contemplated that Catzen would make money, presumably out of the liquor business on the premises, and pay back the $30,000 in yearly instalments from that source, and the "creditors could wait a year or so." Evidently it was contemplated that the "creditors" were those persons from whom the money was to be obtained to develop the lease. Kaufman agreed with the lessor to back Catzen in the development. If he had not done so the lease would not have been made. Just how much he was to contribute for that purpose does not appear from the testimony of Clark, Tierney and Lincoln. Catzen says it was $20,000.00. Kaufman refused to contribute any sum, and, as stated, he became an enemy of the enterprise when Catzen refused to change the original contract in the particulars set out. On the former appeal we decided that Kaufman, although he had breached his contract, had not forfeited his $30,000.00 and was entitled to a 1-3 interest in the profits. Are there any profits? This is the question which arises on this appeal from the decree based upon the commissioner's report. The commissioner found there were no profits, but the decree which sustained exceptions to the report ascertained the profits to be $37,756.44. It must be remembered that Catzen's contribution to the venture was time and energy as against Kaufman's $30,000, and on this basis Kaufman was to have one-third of the profits and Catzen the other two-thirds. But Kaufman failed to further cooperate after paying in the $30,000, and the burden fell upon Catzen to develop the lease and carry on the venture or abandon it. The monies which he raised for that purpose should be returned to him and to those from whom obtained before there can be any profits paid out. It follows that being entitled to a return of the money contributed, he is entitled to interest thereon from the time it was advanced and used for the common purpose. Had Kaufman furnished the $20,000 for improvements he would have been entitled to its return with interest, before division of profits. So far as the joint venture was concerned, any advancements used for development were in the nature of a loan to which legal interest should be added, when repaid. Prom the present record we do not find sufficient

data on which to base a calculation of interest on the monies furnished as advancements. The houses and improvements placed on the land belong to the joint enterprise, together with the value of the lease thus enhanced. But the funds raised by Catzen and expended for that purpose, being a burden, shouldered by him and not incumbent upon him to assume under the agreement, it is clear that such funds together with...