Leone v. DiChiara

A-400-96T1 (N.J. Super. App. Div. 1998) (Unpublished)
  • Opinion Date: June 9, 1998

PARTNERSHIPS; FORMATION; CONTRACTORS; SPECIFIC PERFORMANCE—When a partnership agreement is discussed, but no meeting of the minds takes place, partnership-like activities will not support a contention that a partnership has been formed. Actions taken by a contract buyer subsequent to the execution of the contract can constitute an abandonment of the contract which would bar the contract purchaser from an award of damages for the seller’s breach of the contract.

This case involves a dispute between a mother and her son over the ownership of the economic attributes of a shopping center that the mother inherited on the death of her second husband. For a significant period before her husband’s death and for a number of years thereafter (on behalf of the estate), the son actively managed and developed the property. Throughout a portion of that time and also including the period through which the shopping center was owned by the decedent’s estate, the shopping center was under the control of a bank’s trust department. A time came when the bank’s trust department thought that it would be wise to sell the shopping center, thereby converting the estate’s assets from real property to cash. Among other things, this would enable the estate to settle a significant claim against the estate by a daughter of the husband’s first marriage.

The manner in which the shopping center was structured presented an opportunity for an outside party to purchase one of its underlying parcels and thereby be in a position to acquire the entire shopping center at a price that would be less than ideal to the estate. The son, sensing that opportunity, structured a transaction to measurably increase the value of the shopping center. As part of that structure, he and his mother entered into a contract whereby the estate would sell the shopping center to the son for the then enhanced value. The son then proceeded to do all of the things that a shopping center developer would do to finance and improve the shopping center. Before a closing under the contract would have taken place, the mother suggested that she and the son form a partnership to acquire the shopping center from the estate. This appealed to the son because it was a plan very similar to one that he had proposed many times before, but which had been rejected by his mother. It also meant that the mother would put equity into the partnership and the son, as his part, could arrange for the loan. In furtherance of this new proposed structure, and to resolve the major claim against the estate, the son arranged for financing that could have been used either by himself, as contract purchaser, or by the estate to “refinance” the property and to take cash out to pay the claim. For a variety of reasons, it was decided that the estate would be the borrower, but the son and the mother were each to be personal guarantors. Throughout all of this time, the son’s contract of sale with the estate remained in place.

When it now appeared that the partnership arrangement would be embodied into a written agreement, the mother demanded that she have a 55% partnership interest. Subsequent telephone conversations increased that percentage until it reached a level as high as 91%. Her son never wavered on retaining a 50% share. Throughout this entire period of time, the son drew a salary as a property manager and some small distributions were made by the son on a 50/50 basis. The mother did not object to those distributions. Eventually, all of the negotiations fell through when, among other things, the mother insisted that the son, in contemplation of his own impending marriage, enter into a pre-nuptial agreement with his wife to be. The son then pulled out as manager, and withdrew a sum from the business’ bank account in an amount that he calculated to be about a 50% share after leaving a reserve for expenses.

In the lawsuits that followed, the lower court and the Appellate Division, for differing reasons, found that the son was entitled to keep the money he had taken, with the Appellate Division treating it as appropriate compensation based upon the compensation levels that had been paid in previous years, but which had not been paid in the year during which the withdrawal was made. In addition, the evidence showed that the mother accepted the withdrawal as if it were earned compensation and not as if it were a partnership withdrawal. The son, however, contended that he was entitled to specific performance of the purchase contract. Although the lower court denied specific performance, it awarded monetary damages. The Appellate Division found that there was no basis on the record for the monetary damages and further found that the son, in effect, had abandoned the written contract. It used the following language as its rationale: “[h]is testimony establishes that he walked away from the sales contract to ‘accommodate’ his mother and in an attempt to forge a business partnership with her in the ownership and management of the Shopping Center.” The son also alleged that he and his mother were equal partners in the shopping center. The lower court denied that claim and the Appellate Division affirmed. In essence, in the Court’s view, there was no meeting of the minds regarding terms essential to a partnership involving the shopping center. The son conceded that the parties contemplated a written agreement which was never drafted and that there were long outstanding unresolved issues such as how long the partnership would hold the property before selling it. Additionally, the mother, in wanting to avoid complications in the event that her son, who was contemplating marriage, divorced, demanded a pre-nuptial agreement to which the son refused to accede. Fundamentally, the Appellate Division believed that the trial evidence corroborated the absence of a meeting of the minds regarding the partnership relationship. Finally, while the Appellate Division thought that the son might have had a good claim for a damage award based upon his work in enhancing the value of the shopping center, because the son pleaded only a claim for specific performance and did not plead a claim for monetary damages nor provide proof to support such a claim, his mother did not have an opportunity to defend against such a claim. Therefore, no such damages were awardable to the son.