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Eline Realty Co. v. Foeman

September 26, 1952



WADDILL, Commissioner. The Eline Realty Company instituted this declaratory judgment action against Roy H. Foeman seeking to have the court determine their respective rights under a written contract. Judgment was entered in favor of Foeman in the sum of $38,689.14. The Eline Realty Company has appealed and Foeman has cross-appealed.

On January 2, 1946, A. J. Eline and Pearl Ruth Hartman, partners doing business as Eline Realty Company, entered into a written contract with Roy H. Foeman, the pertinent part reading as follows:

'Whereby party of the second part, Roy H. Foeman, agrees to give his entire time to the Eline Realty Company as Sales Manager, in listing and selling Real Estate of all kinds; also acting as superintendent of construction in building houses and developing subdivisions. As compensation for this service party of the second part is to receive one-half of the regular real estate commission prescribed by the Louisville Real Estate Board on all sales after all expenses connected therewith, such as advertising, salaries and commissions to outsiders have been deducted. Party of the second part is also to receive one-half of all profits made in the building of houses, and buying of any property for speculative purposes.

'An accounting and settlement shall be made every six months and all profits shall be divided according to this contract.

'It is further agreed, by both parties, that either party has the privilege of purchasing any real estate in their own name, if they so desire without any objection to the other party.

'This contract is to continue and remain in full force until either party notifies the other, by giving thirty days notice, in writing, that he wishes to terminate this contract, at which time full settlement shall be made and this agreement shall become null and void.'

Pursuant to this contract, Foeman listed and sold real estate; he obtained tracts of land and acted as superintendent of construction in the building of houses and in the development of subdivisions. After the contract had been in effect a little over two years, a dispute arose between the parties as to the amount of compensation due Foeman which resulted in the cancellation of the contract. This action was then filed.

The circuit court construed the contract as a joint venture in the buying of real estate for speculative purposes and in the building of houses. Under this construction, the court awarded Foeman one-half of the commissions which were earned, one-half of the profits on houses and lots sold, and one-half of the enhanced value of the property bought or developed.

To create the relationship of a joint venture, there must exist a common undertaking in which there is a combination of money, efforts, skill or knowledge, a joint control between the parties in the undertaking, and a sharing of profits or losses derived from the enterprise. Burbank v. Sinclair Prairie Oil Co., 304 Ky. 833, 202 S.W.2d 420; Central Trust Company of Owensboro v. Creel, 184 Ky. 114, 211 S.W. 421. The contract in the instant case provided for all the requisites cited above as necessary to the relationship with the exception of a provision regarding losses. Concerning the necessity of an agreement to pay losses in creating a joint adventure, 48 C.J.S., Joint Adventures, ยง 2, page 811, reads:

'As a general rule, in order to constitute a joint adventure it is necessary that the parties agree to share losses (see cited cases), and an important test in determining whether or not a joint adventure exists is whether or not there is an agreement to share in losses. The absence of an express agreement to share in losses, however, is not material, since such an agreement may be implied from an agreement to share profits, * * *.'

In Tidewater Construction Co. v. Monroe County, 107 Fla. 648, 146 So. 209, 211, the court stated:

'* * * the question of whether the parties to a particular contract have created between themselves the relationship of joint adventurers is dependent upon their intentions, which is to be determined in accordance with the ordinary rules covering the interpretation of contracts; that joint adventurers are entitled to share in the profits, and must also share the losses, if any; that a joint adventure is very similar to a partnerships, the chief distinction being that a joint adventure is usually limited to a single transaction; that although there may not be any express agreement that the parties shall share in the losses, if any, this must have been implied from the agreement made, and the circumstances surrounding its execution, as having been within the contemplation and intention of the parties.'

The contract in this case contains no express provision that the parties were to share the losses. It also appears that under the circumstances surrounding its execution that such was not the intention of the parties. One of the principal reasons for this contract being entered into was to effectuate the development of a subdivision. To accomplish this, it was necessary to expend large sums of money which necessarily would involve the risk of substantial losses. From the testimony introduced, it appears that Foeman would have been financially unable to share a substantial loss. When this is considered the inference must be drawn that the parties did not intend for Foeman to share the losses.

The chancellor, therefore, erred in construing the contract to create a joint adventure when an essential element to that relationship was lacking. It is then incumbent upon ...

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