Stone-Fox, Inc. v. Vandehey Development Co.

• Decision Date: 07 April 1981
• Docket Number: INC,No. 39-004,STONE-FO,39-004
• Parties: , a corporation, Appellant-Respondent, v. VANDEHEY DEVELOPMENT CO. and Jack P. Leonard, Respondents-Petitioners. ; CA 14608; SC 27140.
• Court: Oregon Supreme Court

Page 1365

626 P.2d 1365

290 Or. 779

STONE-FOX, INC., a corporation, Appellant-Respondent, v. VANDEHEY DEVELOPMENT CO. and Jack P. Leonard, Respondents-Petitioners.

No. 39-004; CA 14608; SC 27140.

Supreme Court of Oregon.

Argued and Submitted Dec. 1, 1980.

Decided April 7, 1981.

Thomas A. Huffman, Hillsboro, argued the cause for respondents-petitioners. With him on the briefs were Andrew M. Rich, and Huffman & Zenger, Hillsboro.

James N. Westwood, Portland, argued the cause for appellant-respondent. With Before DENECKE, C. J., and TONGUE, LENT, LINDE, PETERSON and CAMPBELL, JJ.

him on the briefs were Richard A. Edwards, and Miller, Anderson, Nash, Yerke & Wiener, Portland.

TONGUE, Justice.

This is a suit for specific performance of an earnest money agreement to sell a tract of land. Plaintiff contends that Vernon Vandehey and Jack Leonard were partners for the purpose of the development and sale of that tract of land and that, as such, the act of Mr. Vandehey in signing that agreement was binding upon Mr. Leonard even though he did not sign the agreement.

The trial court held for the defendants based upon findings (1) that the evidence was insufficient to establish a partnership; (2) that an oral statement by Mr. Vandehey that he had authority to sell the property was insufficient to transfer the interest of Mr. Leonard in that to do so would violate the statute of frauds and, in any event, (3) that the earnest money agreement was not intended to be a final agreement.

Plaintiff appealed to the Court of Appeals, contending that the trial court was in error in each of these three findings. The Court of Appeals reversed the trial court, holding that there was a joint venture between Mr. Vandehey and Mr. Leonard for development and sale of the tract, and that "once a partnership or joint venture is established, agency need not be proved to show that one partner or venturer was authorized to act for another." 46 Or.App. 465, 470, 611 P.2d 1195 (1980).

We allowed defendants' petition for review because of our concern whether one party to a joint venture has the power to convey real property held in a tenancy in common with another joint venturer and whether partnership law was intended to govern joint ventures in this respect.

THE FACTS

The property in dispute in this case is a 46 lot parcel in Washington County known as Family Acres. Late in 1977 Mr. Vandehey obtained a bank loan to finance development of the lots in Family Acres as homesites. In seeking the loan he informed the bank that Mr. Leonard would have an interest in the property and that Family Acres would be a joint venture between the two of them. The bank then required Mr. Leonard's guarantee on the loan, although the title to the property was then held in the name of Mr. Vandehey. Six months later, Mr. Vandehey deeded Family Acres to "Vernon L. Vandehey and Jack Leonard" as joint tenants.

On August 23, 1978, Mr. Vandehey called the office of Mr. Stone, president of plaintiff corporation, to inquire whether he was interested in purchasing the subdivision. Mr. Stone expressed an interest and invited Mr. Vandehey to meet him the next day to discuss the transaction. On August 24 Mr. Vandehey went to the office of Mr. Stone to discuss a possible sale of the property.

The parties disagree as to what exactly was said during the ensuing discussion. According to Mr. Stone, however, Mr. Vandehey said that he had a "partner" in the transaction named Mr. Leonard, and that when Mr. Stone then offered to pay $15,000 per lot for the tract Mr. Vandehey said that his authority was limited to making a sale for $15,500 per lot and that "he would have to discuss" the offer of $15,000 per lot "with his partner, Mr. Leonard."

Mr. Stone testified further that Mr. Vandehey called him the next morning and said that he had discussed the matter with Mr. Leonard, that they had agreed to sell the property at the price of $15,250 per lot, and that Mr. Stone then accepted that counter-offer.

Mr. Vandehey then signed on behalf of defendant Vandehey Development Company (VDC) an earnest money agreement for sale of Family Acres to Stone-Fox Inc., the plaintiff. Four days later, Mr. Vandehey conveyed his undivided interest in Family Acres to VDC, a corporation owned entirely by Vandehey. ¹ Mr. Leonard did not sign either the earnest money agreement or its addendum and those documents were not executed by Mr. Vandehey in the name of a partnership or joint venture. There was neither a written agreement between either Mr. Vandehey or VDC and Mr. Leonard governing their relationship, nor a written authorization by Mr. Leonard for Mr. Vandehey or VDC to sell the property.

On September 14, 1978, an attorney acting on behalf of Mr. Leonard returned the earnest money to Mr. Stone for the stated reason that at the time the earnest money agreement was signed VDC had no interest in the property. ² On September 20, 1978, defendants executed an earnest money agreement for the sale of Family Acres to a third party. The record does not reveal whether that sale was consummated. This lawsuit was filed on October 2, 1978.

1. The relationship between defendants was that of joint-venturers or partners.

ORS 68.110 defines a partnership as "an association of two or more persons to carry on as co-owners a business for profit." A partnership for a single transaction is a joint venture. Hayes v. Killinger, 235 Or. 465, 470, 385 P.2d 747 (1963). In Hayes, supra, this court held that "(t)he essential test in determining the existence of a partnership is whether the parties intended to establish such a relation"; that "in the absence of an express agreement * * * the status may be inferred from the conduct of the parties in relation to themselves and to third parties," and "when faced with intricate transactions that arise, this court looks mainly to the right of a party to share in the profits, his liability to share losses, and the right to exert some control over the business."

Defendants acknowledge that they shared in profits and losses and that each shared the right of control in the Family Acres project. They contend, however, that these factors also describe a joint tenancy, or tenancy in common, which alone is insufficient to establish a partnership; that they are, therefore, not partners or joint venturers, and that as co-tenants the act of one cannot bind the other.

It is true, as expressly provided by ORS 68.120(2) that a joint tenancy or tenancy in common "does not of itself establish a partnership, whether such co-owners do or do not share any profits made by the use of the property." However, a joint tenancy or tenancy in common has some of the characteristics of a partnership, such as sharing equally in profits and liabilities (ORS 105.820, ORS 105.080), and having a right to equal control of the property. (Bolton v. Schimming, 226 Or. 330, 360 P.2d 540 (1961); Shea v. Peters, 126 Or. 76, 268 P. 989 (1928)). The existence of a joint tenancy or tenancy in common does not, however, preclude a partnership or joint venture from existing, as defendants seem to contend.

In this case defendants were clearly more than co-owners of land. They were engaged in a business venture for the development of a subdivision. That business venture required construction of curbs, grading of roads and installation of gas, electricity, sewer and water lines. The extensive development of property in such a manner, together with the intent to exert joint control and to share in the profits or losses, is sufficient to establish a partnership or joint venture. A. Bromberg and J. Crane, Law of Partnership 61 (1968). In addition, Mr. Vandehey told the banker that he and Mr. Leonard were engaged in a joint venture. In our opinion, the Court of Appeals was correct in holding that the relationship between defendants was more than one of joint tenancy or tenancy in common, but was either a partnership or joint venture.

It would further appear that the relationship of the defendants was that of a joint venture rather than a partnership. As stated in Hayes v. Killinger, supra, at 470, 385 P.2d 747:

"The principal difference between a joint adventure and a partnership is that a partnership is ordinarily formed for the transaction of general business of a particular kind while a joint adventure is usually limited to a single transaction." Hayes, supra, at 470, 385 P.2d 747.

Although defendants had engaged in some similar transactions before involving development and selling of real property, there is no substantial evidence that they had formed a partnership for the general purpose of carrying on such an enterprise. Instead, it appears that defendants joined together on isolated occasions, such as this, in enterprises of a more limited nature for the development and sale of tracts of land.

Having held, for these reasons, that the relationship between Mr. Vandehey and Mr. Leonard for the purpose of developing this tract of land was that of a joint venture, rather than a partnership, we must next consider whether the act of Mr. Vandehey in entering into an earnest money agreement for the sale of that real property was binding upon the joint venture, including Mr. Leonard as a member of that joint venture, without express written authority from Mr. Leonard.

2. Mr. Vandehey did not have authority to bind the joint venture under the facts of this case.

Partners are agents of the partnership, and the acts of a partner within the scope of the partnership business are ordinarily binding upon the partnership, with some exceptions. ORS 68.210(1). It is contended by defendants, however, that a distinction exists between a joint venture and a partnership in cases involving the authority of a member of a joint venture to sell the real property which is the subject of the joint venture, and that in such cases the rules of agency governing partnerships should not apply to joint ventures.

This court has...