Saunders v. McDonough

SOMERVILLE, J.

(1-3) “The subject of joint adventures is of comparative modern origin. It was unknown at common law, being regarded as within the principles governing partnerships. While some courts hold that a joint adventure is not identical with a partnership, it is regarded as of a similar nature, and governed by the same rules of law. One distinction lies in the fact that, while a partnership is ordinarily formed for the transaction of a general business of a particular kind, a joint adventure relates to a single transaction, although the latter may comprehend a business to be continued for a period of years. * * *• The principal distinction, however, is that in most jurisdictions, where any is regarded as existing, one party may sue the other at law for a breach of the contract or a share of the profits or losses or a contribution for advances made in excess of his share; but this right will not preclude a suit in equity for an accounting. The contract need not be express, but may be implied from the conduct of the parties.”—23 Cyc. 453, A. This text is well supported by the numerous authorities cited.

(4) So far as the questions of mutual good faith and accountability are concerned, the authorities are unanimous in holding that the relation of coadventurers is governed by the law of partnerships, which exacts of all the utmost good faith and fairness in the prosecution of the common enterprise, and forbids the accrual of any profit or advantage therein to one member which is not shared by his associates.—Berry v. Colborn, 65 W. Va. 493, 64 S. E. 636, 17 Ann. Cas. 1018, and note; Jones v. Kinney, 146 Wis. 130, 131 N. W. 339, Ann. Cas. 1912C, 200, and note; Botsford v. Van Riper, 33 Nev. 191, 110 Pac. 705; Edwards v. Johnson, 90 S. C. 90, 72 S. E. 638; 23 Cyc. 455, A.

The complainant’s bill, in its primary aspect, seeks an accounting by certain of the respondents for the proceeds of an alleged joint adventure, undertaken by complainant and the said respondents as his associates, and completed by his associates alone without his participation in its final stages; the allegation being that his said associates have received in that behalf $1,000,-000 in certificates of corporate stock, in which complainant is entitled to share equally with them, and from which he has been by them excluded.

In its secondary aspect, the bill seeks, by alternative prayer, to compel the specific performance of a certain contract, by the terms of which he and his associates were to buy, and the other respondents, Aldrich and Towers, were to sell to them, a valuable tract of mineral land, to be conveyed to a corporation to be organized, and which land was to be the basis for the issuance of the capital stock in which complainant and his associates were to share; the allegation being that this contract had been wrongfully breached and repudiated by the vendors, who, however, shortly afterwards executed the contract in a modified form for and with complainant’s said associates, without complainant’s participation therein. These vendors, and complainant’s four alleged coadventurers, and also the corporation organized by them to hold and develop the lands purchased, are made parties respondent to the bill.

(5) The foundation for complainant’s rights, as here asserted, are in substance thus stated by the bill:

The respondents R. N. McDonough, J. H. McDonough, W. A. Porter, and J. J. Shannon, had an op-, tion for the purchase of certain lands from the respondents Aldrich and Towers, and in February, 1912, McDonough and associates engaged complainant as a broker to market and sell these lands. Later, in July, 1912, they gave him an exclusive written commission to procure a sale. This commission, accepted and signed by complainant, contained these stipulations: “This agreement will be considered in force and effect until the 15th day of November, 1912. • We will further agree that, in the event we decide it is to the best interest of all parties to this agreement to form a corporation with the view of purchasing the lands mentioned above, we will allow the privilege of bonding the lands to enable us to develop and mine the ore. If you are successful in this undertaking, we will give you 33 per cent, of the corporation’s stock, after all incumbrances, including our profits, together with your pro rata, are paid on the properties. In the event we should sell either tract of the land by November 15, 1912, or no sale be effected, we will give you the option or right to join us in the purchase of either or both tracts of land at the same rate per acre as we pay, to the extent of 20 per cent, of same.”

No sale was effected before November 15, 1912, but about October 26, 1912, complainant devised and proposed to said associates a plan to organize a corporation which should acquire these lands by the issuance of its stock and bonds, whereby it was contemplated that complainant and his associates should receive approximately |1,000,000 par value of the capital stock to be equally divided between them. This plan was accepted by said associates, “and your orator and his said associates thereupon mutually, agreed to use their best efforts to cause the same, or some modification thereof, to be carried out and to divide equally, one-fifth to each, the proceeds received by them pursuant to the same or to any modification thereof, and (that) all transactions thereafter had between your orator and his said associates were had in contemplation of such mutual agreement and pursuant thereto.”

Thereupon complainant negotiated with respondents Aldrich and Towers, procured them to cancel their pending option agreement, and to execute and deliver to complainant and said associates an agreement for the sale and purchase of these lands, upon terms therein fully- specified (this document is Exhibit A to the bill, and the reporter will set it out in full). This agreement was in turn executed and delivered to said Aldrich and Towers by complainant and his said associates. By its terms it was to be performed on or before January 1, 1913.

Pursuant to this agreement (of November 26th), the respondent corporation, the Self-Fluxing Ore & Iron Company, was organized on or about December 30, 1912, with an authorized capital stock of $3,000; and on or about January 3, 1913, its authorized capital stock was increased to $1,500,000. On or about the same day said corporation duly authorized an issue of first mortgage 6 per cent, gold bonds.

In the meantime, on or about December 20, 1912, said Aldrich and Towers notified complainant and his said associates that “they declined to- perform said agreement dated November 26, 1912, according to its terms, conditions, and covenants,” and said agreement was, in fact, not performed by them on or before January 3, 1913.

On or about January 3, 1913, complainant’s said associates “proceeded without any participation therein by your orator to carry out and perform said agreement dated November 26, 1912, substantially in accordance with the terms thereof, except that they attempted to modify their obligations, covenants, and conditions therein, in certain respects, and particularly in respect to the obligation of said associates to cause said proposed corporation to make or procure to be made a loan of $50,000 to respondents Aldrich and Towers.”

Thereupon complainant demanded of said associates that they account to him, and deliver to him certificates for his one-fifth share of the shares of respondent corporation’s capital stock, received by them in and about the performance of the agreement of November 26, 1912, which they refused and still refuse to do (as charged on information and belief). Said associates received $1,000,000 par value of said shares of capital stock.

On or about January 20, 1913, complainant offered to pay and deliver to respondents, his said associates, “any proportionate share that might be proper, in cash or other consideration, required in said performance by them of said agreement dated November 26, 1912, as finally modified and performed by them, and then again requested of them a delivery to him of his one-fifth share of the profits realized by them in said transactions; but they all refused, and still refuse, to recognize any rights of complainant in the premises, and refused and still refuse to receive any payment from him in that behalf.”

The chancellor in his decree sustained the demurrers to the bill, both general and special. His views are expressed in a brief opinion as follows. “It is held that complainant and respondents, other than Aldrich and ToAvers, were joint adventurers, under the agreement dated November 26, 1912, and that their relations under such agreement were fiduciary. Said agreement recites that it expires January 1, 1913. It is held that said fiduciary relation expired on that date, except the liability to account for acts or omissions, or both, done or suffered while it was in force. The demurrers of Aldrich and Towers are sustained upon the ninth ground assigned. The demurrers of the other respondents are sustained upon the seventh ground assigned.”

These grounds are, respectively: “(9) Said contract of November 26, 1912, is in the nature of an option agreement under which many acts were to be performed by the purchasers on or before a certain date, and there is a failure to allege the performance of these acts.”

“(7) It is not sufficiently shown wherein or in what manner or to what extent complainant is entitled, under the allegations of said bill, to stock and bonds of the respondent company, Self-Fluxing Ore & Iron Company, or to profits arising or to accrue from transactions with respondents.”

(6) It seems clear to us that the status of joint adventurers, upon which rests the equity of the bill, was created by the alleged agreement of October 26, 1912, and that the contract, made with Aldrich and Towers on November 26, 1912, was but a step in the accomplishment of the joint adventure. In this view of the case, the expiry of the Aldrich and Towers contract by express limitation on January 1 or 2, 1913, would not of itself terminate the agreement of joint adventure made between complainant and his associates on October 26, 1912. That agreement was not limited as to its duration. It was therefore not terminable at the pleasure of any of the parties, so long as its purpose remained unaccomplished, and had not become impracticable.—Berry v. Colborn, supra. 17 Ann. Cas. 1022, note; Jones v. Kinney, supra, Ann. Cas. 1912C, 202, note; 23 Cyc. 454, E.

(7) It could, of course, have been terminated by mutual agreement. And, if one of the parties had refused to substantially perform his obligations in the premises, his associates could undoubtedly have either terminated their relations with him, and themselves carried on the enterprise to his complete exclusion, with an action against him for damages for his breach (Yeager’s Appeal, 100 Pa. 88; McCreery v. Green, 38 Mich. 173; Davidor v. Bradford, 129 Wis. 524, 109 N. W. 576; McIntire v. Carr, 164 Mich. 37, 128 N. W. 1079) ; or they could hold such defaulter to the obligations of his contract, and sue him for money, or property agreed to be contributed to the common fund, or to be supplied for a specified purpose (Pillsbury v. Pillsbury, 20 N. H. 90; Finlay v. Stewart, 56 Pa. 183; Armstrong v. Henderson, 99 Va. 234, 37 S. E. 839).

(8) But, manifestly, they could not do both of these things. And, both upon reason and authority, if for any valid reason they chose to terminate the relationship, they could do so only by giving notice to their associate that the relationship was then and there to be ended.—Edwards v. Johnson, 90 S. C. 90, 72 S. E, 638; Marston v. Gould, 69 N. Y. 220, 224; Annond v. Tupper, 21 Nova Scotia, 11, 16 Can. Sup. Ct. 718.

(9) It is, we think, a sound rule of equity, if not law also, that if one of the parties, after the accomplishment of the enterprise, fails or refuses, upon reasonable notice and demand by his associates, to contribute his due proportion to the expenses thereof, he cannot invoke the aid of a court to secure a share of the proceeds.—See Lind v. Webber, 36 Nev. 623, 134 Pac. 461, 135 Pac. 139, 141 Pac. 458, 50 L. R. A. (N. S.) 1046. But the mere fact that some of the parties paid all the expenses, or furnished all the money used, does not exclude nonparticipating associates from a share of the proceeds.— Botsford v. Van Riper, 33 Nev. 191, 110 Pac. 705; Lind v. Webber, 36 Nev. 623, 134 Pac. 461, 135 Pac. 139, 141 Pac. 458, 50 L. R. A. (N. S.) 1046.

In Botsford v. Van Riper, supra, it was said: “The evidence discloses, and the findings of the lower court are to the effect, that the respondents performed their part of the contract entered into, and stood ready at all times to further aid, as far as lay in their power, pursuant to their agreement, the consummation of the deal originally agreed upon. That they were not called upon to do so by appellant is not a sufficient reason in law or equity to invalidate their right to share in the profits of the deal, because the appellant saw fit to take the reins and do most or all of the work himself after the original agreement was made and entered into.”

(10) It does not appear from the bill of complaint that the joint adventure shown has ever been legally terminated, and it will be presumed as a matter of law, that it has not, in the absence of allegation and proof to the contrary by way of defense to the bill.

(11) The fact that complainant was voluntarily associated in the joint enterprise is- sufficient evidence that he desired to participate therein; but, whether he so desired or not, until he abandoned it, or was legally excluded therefrom, he was entitled to share in its proceeds. And, even if the allegation that his associates finally completed their common undertaking “without any participation therein by him” is fairly susceptible of the construction that complainant refused then to participate therein — which is at least doubtful — if thereafter, before he was notified by them of a termination of their relations with him, he repented of his default, and offered whatever contributions was due from him as a coadventurer, his status and rights therein were thereby effectually preserved.

(12) We think the joint adventure agreement of October 26, 1912, is sufficiently definite as to' the character, condition, and terms of the undertaking. It is true that the amount of the pecuniary contribution to be paid by each of the parties is not stipulated in terms. But in such a case the law will presume that all expenses are to be shared equally, just as it would also presume, in the absence of expression, that the proceeds or profits were to be divided equally. In that aspect of the bill which we have above discussed, we are of the opinion that it is free from demurrable defects.

(13) A very careful analysis of the Aldrich and Towers agreement of November 26, 1912, convinces us that it was intended to be, and in fact was, a mutual contract of purchase and sale between them, on the one hand, and complainant and his associates, on the other. Indeed, the preamble to the contract, which is a part of it, is conclusive of the question. It recites that by this agreement “said Aldrich and associates are to sell, and said Shannon and McDonough and associates are to buy, a certain tract of land,” etc., and there is nothing in the rest of the contract to rebut the obvious meaning and effect of this declaration.

(14) Conceding the contention of respondents that this contract exacted of the associated grantees the performance of several stipulated obligations as a condition precedent to the acquirement of the title from the vendors by a deed of grant, nevertheless the contract vested in the purchasers an inchoate equity which would become a vested equitable estate upon a seasonable tender of performance by them, if afterwards kept good.

(15) The bill does not allege such a tender of performance. It does allege, however, that on or about December 20th, 1912, while the contract was still in force, the vendors notified complainant and his associates (the vendees) that they declined to perform their agreement according to its terms.

Under all the authorities, this repudiation of the contract by the vendors relieved the vendees of - the duty of actually and formally tendering performance of their obligations in the premises, though they were conditions precedent to, or concurrent with, performance by the vendors.—Root v. Johnson, 99 Ala. 90, 10 South. 293; Campbell v. Lombardo, 153 Ala. 489, 44 South. 862; 39 Cyc. 1562, C.

(16) Rut, in order to prevent the extinction of the inchoate equity of the vendees in the present case by the expiration of the period allowed them for performance, it is necessary for them to allege and prove, not only the refusal of the vendors to perform, but that they were themselves able, ready, and willing to- perform during that period of time.—Moss v. King, 186 Ala. 475, 65 South. 180, and cases therein cited. In the absence of such an allegation in the bill, it does not show that the vendees had, after January 2, 1913, even an inchoate equitable interest in the lands. This conclusion invalidates a minor theory and agreement of complainant’s that, independently of the further prosecution of the joint adventure after December 20, 1912, complainant and his associates had and have such a joint interest in the lands under their contract of purchase as to entitled complainant to an accounting by his co-owners for its proceeds, even though the joint adventure was abandoned.

(17) In regard to the alternative prayer for relief by a specific performance of the Aldrich and Towers contract, for which purpose those vendors are brought in as additional parties respondent, a careful scrutiny of the provisions of that contract convinces us that it cannot be adequately and equitably enforced by the court by any decree of specific performance.

In its alternative aspect, therefore, the bill is without equity, and the general demurrer of Aldrich and Towers was properly sustained. So also their special demurrer was properly sustained, on the ground that the bill does not show any equitable interest now in the vendees under their contract of purchase. If those respondents have wrongfully abandoned or breached their contract with complainant, he must seek his redress by an action for damages in a court of law.

(18) We have pointed out that in its primary aspect the bill is not subject to any of the grounds of demurrer interposed. In its alternative aspect it was subject to the general demurrer, and also to several of the grounds of special demurrer, interposed by the “associate” respondents; but these were all directed to the bill as a whole, and not limited to the aspect stated. They could not therefore be properly sustained.

It results that the decree of the chancellor sustaining the demurrers of R. N. and J. H. McDonough and W. A. Porter and J. J. Shannon to the bill of complaint was erroneous. To that extent the decree will be reversed and a decree here rendered overruling those demurrers.

It results also that the decree of the chancellor in sustaining the demurrers of W. F- Aldrich and John Towers to the bill of complaint was without error, and will be affirmed.

Reversed and rendered in part, and affirmed in part.

Anderson, C. J., and McClellan,- and Sayre, JJ., concur.