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Scientech, Inc. v. Bhandari

A-5349-00T3 (N.J. Super. App. Div. 2004) (Unpublished)

CONTRACTS; PERFORMANCE—A person’s intentions need not be proven by what is said; it can also be inferred from actions or from surrounding circumstances.

Two companies entered into a joint venture and executed three memoranda of understanding (MOU). The first MOU created the joint venture and provided for a 60/40 split. The sixty percent owner was to be the managing director and supervise the joint venture’s operations. The forty percent owner was to focus on growth related financing. The heads of the two companies were to serve as joint chairmen of the board. The second MOU involved plans for future expansion and changes in personnel. It provided that all of the sixty percent owner’s overseas personnel would be shifted to the joint venture, and all of that owner’s overseas activities would be carried out through the venture. The third MOU provided that the forty percent owner would transfer about $100,000 to the joint venture as its “equity participation,” and pay $350,528 to the other company for the balance of its fifty percent interest in the joint venture.

According to the sixty percent owner, its joint venturer declared the third MOU as null and void, and resigned as director of the joint venture. A working capital lender then pulled its line of credit because of the problems between the joint venturers. As a result, the joint venture didn’t pay the forty percent owner for equipment that it had purchased for the joint venture. As a result, the forty percent owner sued both the sixty percent owners and the joint venture for monies it contributed over and above what it asserted was its required equity contribution and for goods and services it provided to the joint venture.

The lower court awarded the forty percent owner a judgment for the extra money, but granted the sixty percent owner’s motion for summary judgment as to its co-venturer’s breach of the third MOU. It also held that the forty percent owner and its owner had improperly cancelled the third MOU and then breached its obligations under the MOU. The record was full with memoranda evidencing that the forty percent owner did not have sufficient funds to make its required additional capital contributions under MOU.

On appeal, the forty percent owner contended that there were unresolved issues of material fact concerning the cancelled MOU. The Appellate Division disagreed. It pointed out that the evidence presented to the lower court included letters from the forty percent owner to the other owner admitting that it had no interest in acquiring any more equity in the joint venture pursuant to the third MOU. There was also a letter from the forty percent owner’s counsel to the other joint venturer electing to cancel the third MOU. There were statements in each of the first and second amended complaints admitting that the forty percent owner had cancelled the MOU because of financial difficulties.

The forty percent owner also contended that summary judgment should not have been granted because the question of whether MOU had been revoked required a state of mind determination. Generally, when a party’s state of mind is critical, and there is a genuine issue of material fact as to its state of mind, summary judgment should be denied. However, a person’s intentions need not be proven by what was said. It can also be inferred from actions or from the surrounding circumstances. Here, based on the documentary evidence that the forty percent owner canceled the third MOU and failed to adhere to its terms, the Court found that his state of mind was not critical as to the question of whether he intended to cancel the agreement.

The forty percent owner also claimed that the lower court made erroneous factual findings with respect to whether its joint venturer made its required equity contribution. The forty percent owner claimed that sweat equity could not be part of the sixty percent owner’s equity contribution. The Appellate Division disagreed, concluding that the sixty percent owner had previously made its required equity contributions as evidenced by the forty percent owner’s failure to complain when the two earlier MOUs were executed. As a result, the Court found that there was substantial credible evidence to support the lower court’s decision.

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