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Design Development Team International, Inc. v. Bermark, Inc.

A-6049-03T1 (N.J. Super. App. Div. 2005) (Unpublished)

PARTNERSHIPS; JOINT VENTURES — A joint venture is formed when two or more persons join to form a business venture in which profits and losses are shared.

Two business partners entered into an exclusive sales and distribution agreement with a manufacturer to market and distribute its rugs. The business partners met with a man to discuss financing. During the meeting, the man agreed to provide funding for the contract, but expressed a desire to collaborate with the business partners, as opposed to just serving as a lender. The parties agreed that the business partners would assign the receivables of their company to the man’s company. At the time, the man was the sole owner of his company. The parties agreed that one of the business partners would be named as part owner of the man’s company on a “50/50 equal partnership basis.” A formal agreement was never executed, however the man’s company advanced the necessary funding for the contract. Business proceeded as usual until the manufacturer decided that it no longer wanted to use the business partners’ services. The man then attempted to terminate his agreement with the business partners by changing the locks on the office and notifying customers that he was no longer associated with the business partners. The business partners then filed a complaint to compel the dissolution of the business arrangement with the man and for an accounting. They contended that the business arrangement with the man was a partnership, and therefore the profits should be split equally. In response, the man filed a counterclaim asserting that the two business partners breached their contract with him. He contended that neither a partnership nor a joint venture had been formed between the parties. He further asserted, among other things, that the business partners breached a covenant not to compete and a fiduciary duty owed to him. A bench trial was held during which the man’s counterclaim was dismissed. The lower court ruled that the parties’ business arrangement was, at the very least, a joint venture because the parties agreed to share profits equally. It then calculated the net profit earned by the joint venture and held that the business partners and the man were each entitled to half of the profit. The man appealed, asserting, among other things, that the lower court had erred in finding that the parties had entered into a joint venture.

The Appellate Division affirmed the lower court’s ruling. It discussed the elements of a joint venture. In order for a joint venture to be formed, all or some of the following elements must be present: 1) a contribution by the parties of money, property, effort, knowledge, skill or other asset to a common undertaking; 2) a joint property interest in the subject matter of the venture; 3) a right of mutual control or management of the enterprise; 4) expectation of profit; 5) a right to participate in the profits; and 6) limitation of the objective to a single undertaking or ad hoc enterprise. A joint venture is defined as a combination of two or more persons where in some specific venture a profit is jointly sought without any actual partnership or corporate designation. It is usually formed when the parties agree to share the profits and losses of the venture. However, the lack of an agreement to share losses does not negate a joint venture. In applying these principles, the Court held that the arrangement was a joint venture because the parties agreed to join together to profit from the distribution of the rugs, and each party brought something to the venture. The man had the duty of financing and day-to-day operations and the business partners were responsible for marketing and distributing the rugs.

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