Opinion
11-21-1924
TURTUR et al. v. ISSERMAN.
Louis J. Feit, of Elizabeth, for complainants. Simon Englander and Morris Isserman, both of Newark, for defendant.
Suit for accounting by Joseph Turtur and another, copartners, against Alexander Isserman. Complainants granted leave to amend and bring cause to hearing again.
Louis J. Feit, of Elizabeth, for complainants.
Simon Englander and Morris Isserman, both of Newark, for defendant.
BUCHANAN, V. C. Defendant, Isserman, contracted to purchase a tract of land, and immediately thereafter an agreement was made by complainants and defendant and two other persons (Streyragen and Cella) that the latter and complainants would join with defendant in the purchase of the tract and its development and resale. The agreement provided that it should be done through the medium of a corporation to be formed, in which each of the four parties (complainant partners jointly constituting one party) should have an equal share; each contributing $5,000 to the capital. (A Mrs. Dvorkin was given the option of coming into the project and corporation, but elected not to do so, and hence need not be further considered.)
Of the total capital $600 was to be contributed immediately, and was so contributed in fact; that is to say, each of the other three parties paid $600 to defendant. This was to take care of a $2,000 down payment which defendant had made on his contract of purchase, plus expenses to be incurred in the examination of title and incorporation of the company.
Steps were taken to incorporate the company, but were not completed. Complainants shortly thereafter refused to proceed with the project. Streyragen and Cella apparently did likewise. Complainants finally on May 3, 1922 (about two months after the agreement), caused their attorney to notify Isserman that they did not intend to "become members of your proposed Amper House Corporation," and desired their $600 to be returned to them.
Isserman did not return their money. He proceeded thereafter to complete the purchase, and made a resale of the entire property at a price of $S,000 in excess of the purchase price. In order to do this he was compelled (in default of the balance of the capital which complainants and the othertwo parties had agreed to furnish) to procure additional capital from other parties. This he accomplished under an agreement to give these other parties three-quarters of the profit—an agreement which he carried out. He did not give to complainants (nor apparently to Streyragen or Cella) any of the profit, nor even the return of their $600 or any part of it.
Complainants* hill seeks a decree for an accounting and a share of the profits.
It seems clear upon the facts as stated that this was a joint venture. The corporation was merely the medium for carrying it through. The project was the purchase, development, and resale of the tract. It was partly carried out by all parties. When complainants and the others paid over their $600 payments, they became joint equitable owners with defendant of the tract in question, subject, of course, to the payment of the balance of their agreed contributions to the total capital, or at least to so much thereof as should be required, pro rata, to accomplish the consummation of the purchase.
Complainants thereafter refused to perform further. They attempt to justify this refusal on the ground that defendant was in default, that he did not have the corporation formed, and did not have the contract assigned either to the name of the corporation or to the names of all four parties. On this point I am compelled to find against them on the weight of the evidence, which indicates that their default was for another reason, which gave them no right to rescind. (I do not mean to be understood as being of opinion that complainants would have had the right to rescind, even if their charges had been true, in fact. See Procter & Gamble Co. v. Powelson [C. C. A.] 288 F. 299.)
Complainants had bound themselves to complete the purchase of the tract with defendant. They decided not to do so, and demanded the return of the moneys paid. Defendant might have agreed to do so, but he was not obliged to, and he did not. On the other hand, defendant was not entitled, by reason of complainants' default and refusal of further performance, to treat complainants' payment of $600 and his interest in the project as forfeited (33 C. J. 854, and cases cited), although, since complainants' interest was subject to their liability for the further payment, it would probably be subject to sale on proceedings to foreclose.
Where a joint adventurer refuses to complete his agreed contributions, I am not certain but that the remaining adventurers might be entitled to an election, either to proceed, limiting the defaulting member's share in the enterprise to a share proportionate to his contributions actually paid or to proceed on the original share plan, charging the defaulting member's share with the additional expense and damage caused by his default. Certainly I think there can be no doubt as to their right to adopt the latter course.
Possibly where such default is made in the form of an actual abandonment of the enterprise by the defaulting member, and a notification that he will have nothing further to do with it, the remaining members might be entitled in equity, where they take over the burden of supplying the deficit of the default, to exclude the defaulting member from participation in profits, or losses, beyond his capital actually paid in, so that, where the venture proved profitable, their obligation to the defaulting member would be only to return his paid-in capital, with or without interest. Certainly I think that the defaulting member would at least be entitled to that, in the absence of any forfeiture provision in the agreement, and in the absence of foreclosure of his right by legal proceedings.
The evidence as to just what occurred amongst the parties at the time of the default, or the several defaults, is so scanty as to increase the difficulty of a determination of these questions. However, they need not, and indeed cannot be, decided at this time. Streyragen and Cella, the other two joint adventurers, have not been made parties to this suit. It seems clear that they are necessary parties, and complainants may have leave to amend and bring them in and bring the cause to hearing again.
I think defendant is entitled to costs on the hearing, although no objection was raised; by him as to the want of parties.