Shain Inv. Co., Inc. v. Cohen

• Decision Date: 10 December 1982
• Citation: 15 Mass.App.Ct. 4,443 N.E.2d 126
• Parties: SHAIN INVESTMENT COMPANY, INC. et al. 1 v. Herman B. COHEN.
• Court: Appeals Court of Massachusetts

Page 126

443 N.E.2d 126

15 Mass.App.Ct. 4

SHAIN INVESTMENT COMPANY, INC. et al. ¹ v. Herman B. COHEN.

Appeals Court of Massachusetts Suffolk.

Argued Oct. 28, 1982.

Decided Dec. 10, 1982.

Tina M. Traficanti, Boston, for defendant.

W. Arthur Garrity, III, Boston, for plaintiffs.

Before BROWN, GREANEY and DREBEN, JJ.

GREANEY, Justice.

The defendant, Cohen, appeals from a judgment entered in the Superior Court pursuant to Mass.R.Civ.P. 56(a), 365 Mass. 824 (1974), which found him liable for breach of contract and assessed damages in the amount of $124,952.56.

By an agreement dated July 25, 1969, the plaintiffs Shain Investment Company, Inc. (SI), and its principals, Jack and Louis I. Shain (Shains), acquired a one-tenth interest in (i) Investment Funds, Inc. (IFI), (ii) the net earnings of Roberts & Co. (Roberts) (owned by IFI's principal shareholder, Harold J. Moffie), and (iii) certain stock of Medical Services Corp. of America (Medical Services) (also owned by Moffie). IFI, Roberts and Medical Services appear to have been concerned (among other things) with the design, financing, construction and management of nursing homes, apartments, and condominiums and with the provision of services to those projects. Additionally, under the agreement SI acquired an "option" to purchase ten percent of the stock of Congress Capital Corporation (Congress) from Moffie, if Moffie acquired all of Congress's stock. For its part, SI agreed to obtain unsecured lines of credit for IFI so it could obtain working capital and to provide any needed corporate guarantees and endorsements. The Shains agreed to provide any individual guarantees or endorsements required by lenders. The Shains each became compensated vice-presidents of IFI, and SI was permitted to designate a member of IFI's board of directors. Jack Shain was the designee.

By written agreement dated August 1, 1969, SI and the Shains agreed to transfer to Cohen, in consideration of $50,000, one-third of their interest in IFI and in the other rights acquired under the July 25 agreement. Cohen had been the plaintiffs' accountant for more than twenty years, was knowledgeable in the investment field, and had been involved in previous "deals" with the Shains. With certain exceptions not here material, the August 1 agreement provided that Cohen would share to the extent of one-third in "(a) all income, profits, benefits, rights and privileges (including without limitation, the rights to one-third [ 1/3] of the earnings of Roberts & Co., the right to participate in [IFI's] future developments ... and the right to acquire any interest in Congress ...) and (b) all payments, expenditures, losses, duties and obligations, under .. the [July 25] Agreement." Cohen asserts that an oral understanding, never reduced to writing, was reached prior to or contemporaneously with the August 1 agreement by which he would receive the first $50,000 disbursed from IFI in order to recoup his investment. Cohen never dealt directly with IFI, Roberts, Medical Services or Moffie, nor did the agreement purport to give him the right to do so.

IFI went bankrupt at a date undisclosed in the record but apparently in late 1970. While the parties' investment was active, they had shared certain expenses and Cohen had received about $35,000 in proceeds. The plaintiffs claim to have incurred losses and expenses of $374,856.78 which Cohen has refused to share.

SI and the Shains then brought this action against Cohen to enforce his obligation to pay one-third of the losses and expenses. Cohen admitted the existence of the August 1 agreement but asserted that it created, by way of a partnership or joint venture, a fiduciary relationship, which the plaintiffs had violated by their mismanagement of the investment. He claimed to have been excused from sharing in any losses because such losses were caused by violations of duties owed him by the plaintiffs. The plaintiffs moved for summary judgment and both sides submitted materials in support of and in opposition to the motion. The foregoing facts are taken from those materials and appear undisputed. The motion was referred to a master who, after hearing, recommended in a brief memorandum that judgment enter for the plaintiffs on the motion. A judge of the Superior Court accepted the master's recommendation, ruling in essence (in accord with the analysis in the master's memorandum) that no genuine issue of material fact was presented as to the existence of either a partnership or joint venture and that Cohen's attempt to engraft an oral term on the August 1 agreement was barred by the parol evidence rule.

1. As among the parties, the existence of a partnership or joint venture depends upon their intent to associate as such. Cardullo v. Landau, 329 Mass. 5, 8, 105 N.E.2d 843 (1952). We are of the opinion that no general partnership was created by the August 1, 1969, agreement with respect to Cohen's relationship to SI and the Shains. Although its absence is not decisive, the word "partnership" appears nowhere in the agreement. Compare Shinberg v. Garfinkle, 361 Mass. 109, 114, 278 N.E.2d 738 (1972). The agreement deals with Cohen's purchase of stock and the parties' arrangement to share the rights and obligations created under the July 25 agreement, but it does not provide a vehicle for joint control of a business. As in Shinberg, "[w]hatever relationship there was between [the defendant] and [the plaintiffs] was for a single, limited investment by the former, rather than for the joint conduct of a continuing business." Ibid. Cohen and the plaintiffs were not associated "to carry on as co-owners a business for profit." See G.L. c. 108A, § 6(1).

2. The relationship does, however, reflect certain attributes of a joint venture, a form of business relationship which has not been comprehensively defined by our courts. See Cardullo v. Landau, supra; Eastern Elec. Co. v. Taylor Woodrow Blitman Constr. Corp., --- Mass.App. ---, --- - ---, Mass.App.Ct.Adv.Sh. (1981) 110, 114-115, 414 N.E.2d 1023. "Speaking generally a joint adventure is a partnership of a sort or, at least, it has many of its characteristics. It differs, however, from a partnership in that it is ordinarily, although not necessarily, limited to a single enterprise, whereas a partnership is usually formed for the transaction of a general business." Cardullo v. Landau, supra 329 Mass. at 8, 105 N.E.2d 843. See Mendelsohn v. Leather Mfg. Corp., 326 Mass. 226, 233, 93 N.E.2d 537 (1950). See also Taubman, What Constitutes a Joint Venture, 41 Cornell L.Q. 640, 641 (1956); Annot., 48 A.L.R. 1055, 1060 (1927); Annot., 138 A.L.R. 968, 974-975 (1942). It has been suggested that the primary difference is "that in a partnership each member is co-owner of a business,--a fact that does not exist in a joint adventure" (emphasis in original). Note, A Partnership and a Joint Adventure Distinguished, 33 Harv.L.Rev. 852, 853 (1920). The agreement among SI, the Shains and Cohen comprehended a limited arrangement in which the parties pooled capital and risk to obtain mutual advantage from an investment opportunity.

In Shinberg v. Garfinkle, supra, the plaintiff, Mr. Shinberg, had advanced $25,000 to the defendant Garfinkle to share in the defendant's investment with two others in a nursing home. The defendant contributed only services to the enterprise. The plaintiff had no right to control or manage the investment. The court found that the arrangement between the parties "in some respects resemble[d] a joint venture." Id. 361 Mass. at 114, 278 N.E.2d 738. The court stopped short, however, of expressly holding it to be one, apparently because the parties' agreement did not manifest the requisite intent to associate as joint venturers in view of the express use of those words to describe the relationship between the defendant and the other two investors. In the present case there is no such internal inconsistency in the August 1 agreement as would allow us to read out of the agreement an intent to associate as joint venturers.

In Air Technology Corp. v. General Elec. Co., 347 Mass. 613, 199 N.E.2d 538 (1964) the parties became involved in a "team" proposal for a military contract for complex scientific equipment. The court concluded that the agreement was not a "joint venture within that indefinite term's ordinary usage," id. at 624, 199 N.E.2d 538, because "[t]here was to be no such sharing in the profits of the prime contract, no such joint interest in particular assets, and no such joint control of performance as would ordinarily exist in a joint venture in the usual sense." Id. at 625, 199 N.E.2d 538. In the present case, however, Cohen had an express right to share in profits, an interest in the investment's present and future assets, and, as will be discussed in more detail later in this opinion, an interest in the way the investment was managed.

It may not be possible to identify criteria for the existence of a joint venture with any definiteness. Nevertheless, the following pragmatic check list suggests considerations which, if present or absent, may bear upon the recognition of one: (1) an agreement by the parties manifesting their intention to associate for joint profit not amounting to a partnership or a corporation; (2) a contribution of money, property, effort, knowledge, skill, or other assets to a common undertaking; (3) a joint property interest in all or parts of the subject matter of the venture; (4) a right to participate in the control or management of the enterprise; (5) an expectation of profit; (6) a right to share in profits; (7) an express or implied duty to share in losses; and (8) a limitation to a single undertaking (or possibly a small number of enterprises). See 2 Williston, Contracts § 318, at 555-556, § 318A, at 563-565, 574, 579 (3d ed. 1959); Bromberg, Crane and Bromberg on Partnership § 35 (1968); Reuschlein & Gregory, The Law of Agency and Partnership § 266 (1979). It is...