The following article first appeared in Trial Talk 7.81990, and is reprinted by permission of the Colorado Trial Lawyers Association. All rights reserved.

The Imposition of Vicarious Liability Through Joint Venture

By Jersey M. Green

Alan C. Friedberg
Commercial Litigation Editor

The application of the law of joint venture imposes vicarious liability among the participants of associations formed for business or social purposes. The elements necessary to constitute a joint venture differ for business and nonbusiness associations, but for either application, joint venture theory is rooted in the law of partnership.[1] The consequence of this origin is that once the joint venture is bound, each individual joint venture is rendered jointly and severally liable for that debt or obligation.[2]

 

JOINT VENTURES FOR BUSINESS PURPOSES

In Realty Development Co. v. Feit, 154 Colo. 44, 387 P.2d 898 (Colo. 1963), the Colorado Supreme Court set forth the elements of a joint venture formed for business purposes. Each of these elements must be present for there to be a joint venture: (1) a joint interest in property; (2) actions or conduct showing cooperation in the project; and (3) an agreement, express or implied, to share in the losses and profits of the venture.

No specific formal agreement is necessary to form a joint venture.[3] But there must be evidence of a voluntary agreement, either expressed or implied, between the parties to engage in conduct amounting to a joint venture.[4] Specific intent is not necessary to form a joint venture and conduct consistent therewith can overcome the participants declarations to the contrary.[5] Consequently, joint ventures with no written agreement and without a name are often encountered, sometimes to the chagrin of their participants who may not realize that they have created a joint venture and its attendant liability.

Joint Interest in Property

A joint interest in property comes about when the joint venturers combine their money of credit, property, effects, labor or skill in furtherance of the venture.[6] While requiring a joint interest in property, the courts of Colorado and most other jurisdictions have failed to actually define the term. However, because the substantive law of partnerships is applicable to joint ventures,[7] the Uniform Partnership Law may lend assistance in understanding the term by identifying a partners property rights. Those rights, including a right to participate in the management of the partnership, are set forth in 76012, C.R.S., as:

His interest in the partnership. The nature of a partners interest in the partnership is his share of the profits and surplus.[8] There is no requirement that the partners have an equal share in such property.

His rights in specific partnership property. Partnership property is all property originally brought into the partnership or subsequently acquired on account of the partnership.[9] The partner holds such property as a tenant in partnership which means that the partners each have an equal right of possession of the property for partnership purposes.[10]

McNeill v. Allen, 35 Colo. App. 317, 534 P.2d 813 (1975), presents a quintessential example of coventurers creating a joint interest in property. Allen, a fledgling building contractor, and his co-defendant, Hammer, a licensed real estate broker, worked together in the business of constructing and selling houses and formed a business for that purpose. The McNeills approached Allen to discuss the possibility of his constructing a new house for them. At Allens suggestion, the McNeills met Hammer, who showed them several buildings sites. The McNeills chose one of the sites and Hammer appraised the McNeills residence for listing purposes. Hammer obtained title to the lot and conveyed title jointly to himself and Allen. He then cosigned the financing loan with Allen and supervised the construction. Allen filed for bankruptcy and Hammer was held liable for the cost of completing the house and satisfying materialmen liens on the theory that he was Allens joint venturer.

A joint venturer in property, however, need not be manifested by the ventures property being titled in the names of the joint venturers. Because of the informality with which joint venturers deal with one another, such evidence is often not present. The joint interest can arise by virtue of the cooperation of the coventurers in the project, the fruits of their labors becoming subsequently acquired property of the joint venture much the same as property subsequently acquired on account of a partnership.[11]

Actions Or Conduct Showing Cooperation In The Project

 

Joint venturer liability should always be considered when others have cooperated with the debtor in the activity out of which the debt arises. But the nature of the cooperation is important. The requirement that this cooperation be manifested by actions or conduct implies that cooperation by mere acquiescence will not suffice. In the absence of some form of affirmative participation in the project, the legal status of joint venturers might not be distinguishable from the status of passive investors such as stockholders or limited partners. Indeed, a stockholders or limited partners participation in the control of the businesss affairs is the gravamen by which he may be held personally liable to its creditors, although his liability is premised on legal theories other than the law of joint venture.[12]

The facts of Garrett v. Kimbrel[13] are illustrative of joint venturer cooperation in a project. Kimbrel was a concrete-forming contractor who, with a profit motive, decided to help a competitor, Dickerson, make a go of it as a contractor. Kimbrel financed Dickersons accounts and supplied him with additional equipment. This arrangement was formalized by a written agreement, which included an equal division of the ventures profits. Kimbrels checking account was used to meet Dickersons payroll, material bills, and other expenses. When the funds in the account were exhausted, Kimbrel obtained a bank loan. Both Kimbrel and Dickerson collected accounts receivable, using the collections to pay off the bank loan or replenish Kimbrels checking account.

Not every joint venture presents itself with such clear-cut examples of cooperation as the conduct found in Kimbrel. Joint ventures often involve the participants performing different functions in the joint venture, especially where the participants have unique skills to contribute. Frequently, this uniqueness in abilities is the motivating factor in the formation of the joint venture.

Sharing Joint Profits and Losses

 

The most important element of a joint venture is the agreement to share in the joint profits or losses. Actually, so long as there is an agreement to share in the joint profits, there need not be a corresponding agreement to share in the losses because from the right to participate in the profits, the law presumes a corresponding liability for losses.[14] But the profit must be a joint profit. Where two or more parties associate together in a venture, each anticipating individual profit to himself, no joint venture is created because the profit is several rather than joint.[15]

This principle is illustrated in Realty Development, supra, which involved a real estate salesmans suit to recover salary and commissions due him for his services to a home developer. His suit included a claim against the developers financier on a joint venture theory. The claim was premised upon an agreement between the financier and the developer whereby the financier was to receive $500 from each home sold. Payment of this $500, however, was an absolute obligation because the developer was required to make payment regardless of whether he made a profit from the sale of the home. Consequently, this arrangement lacked the feature of an agreement to share in the joint profits of the home-selling business, thereby proving fatal to the salesmans joint venture claim.

Will an agreement to share in the gross proceeds of the venture create a joint venture if the other two elements are met? The answer is probably no, unless perhaps there are no expenses to be paid in the course of carrying out the venture. In Colorado Performance v. Mariposa Assoc., supra, a development contract provided that the gross sales price of developed parcels was to be divided equally between the contract parties, but that each party was to be separately and solely responsible for certain of the expenses involved. In rejecting the joint theory, the Court of Appeals cited the Uniform Partnership Law, which provides that the sharing of gross returns does not itself establish a partnership even if the persons sharing them have a joint interest in the property from which the returns are derived.[16] The Court of Appeals concluded that under the agreement in question one of the parties could have enjoyed an individual profit while the other might have sustained an individual loss, thus giving rise to several rather than joint profits or losses.

The Creditors Reliance on the Joint Venture

If a party has held himself out to be the joint venturer of the debtor, he may be estopped to deny the existence of the joint venture as against those creditors who have acted in reliance upon his representation.[17] As sometimes happens, however, the creditor may not discover the existence of the joint venture until after the lawsuit has been filed and discovery undertaken. A common question is whether the creditor is required to have relied upon the existence of the joint venture at the time he extended credit in order to prevail against the ventures members in a subsequent collection action. There is no good reason why a creditor should be denied recovery against the other members simply because he did not realize that the party incurring the debt was doing so on behalf of a joint venture.

A joint venture is consummated when the minds of the coventurers meet and their mutual promises are exchanged.[18] A creditors knowledge of such an event, or lack thereof, is of no consequence in determining whether the coventurers have formed a joint venture. If a joint venture has been consummated, then the act of one joint venturer, in carrying on the usual business of the venture, binds the joint venture under the Uniform Partnership Law[19] regardless of whether the creditor knows of the relationship. The issue was given succinct treatment in Lee v. Cravens,[20] a partnership case decided by the Colorado Court of Appeals in 1897:

There is no question of estoppel in the case. Reynolds was never held out as a partner with Taylor. No person ever dealt with Taylor on the supposition that Reynolds was his partner, or, so far as appears, with any knowledge or suspicion that any relation of any kind existed between them. The question therefore is, were they partners as between themselves? If they were, they were partners as to all the world. If they were not, they cannot be held as such by third persons, who were not misled by an appearance of partnership.

Consequently, whether a creditor knows the obligation is being incurred on behalf of a joint venture is not dispositive of the joint venturers liability.

JOINT VENTURES FOR SOCIAL PURPOSES

The application of the law of joint venture to social or other nonbusiness associations has been limited almost exclusively to automobile cases in which the plaintiff seeks to impose liability on someone besides just the negligent driver. Vicarious responsibility in connection with such joint enterprises[21] rests upon an analogy to the law of partnership. The elements and consequence of a joint enterprise are set forth in Mayer v. Sampson, 157 Colo. 278, 402 P.2d 185 (1965):

A joint enterprise exists where the participants are engaged in the joint prosecution of a common purpose, each having authority to act for all and each controlling the movements of the undertaking in some part . . . and each person in the joint enterprise is liable for the negligence of the others.

Mayer involved an automobile accident on an icy highway. The plaintiffs were returning to Denver from Kremmling when their motor stalled as they came around a curve. As they were examining the engine, the defendants, Mayer and Patton, who were returning to Denver from skiing at Winter Park, came around the curve. Patton and Mayer had gone skiing in Pattons car with Mayers two sons and two friends of theirs. Mayer, at Pattons request, had driven Pattons car all the way down from Winter Park. He lost control and collided with the plaintiffs car resulting in injuries to the plaintiffs. At trial, Patton specifically testified that he had retained control over Mayer. Judgment was entered against both Patton and Mayer. Patton appealed on the theory that because he was not driving the car but was only a passenger, he could not be held liable for the negligence of Mayer.

The Supreme Court rejected Pattons argument that his relationship with Mayer was that of a bailor and bailee, distinguishing a bailment as consisting of a delivery of personal property by one person to another in trust for a specific purpose, with a contract that the property returned or accounted for when the special purpose has been accomplished, or until the bailor reclaims it. The Supreme Court held that because Patton was seated on the right side of the front seat, he retained control over Mayer because Patton owned the car. The court reasoned that under the circumstances there was no delivery of the car sufficient to constitute a bailment. The court further held that the facts showed a common purpose with the requisite control in Patton sufficient to constitute a joint enterprise for the purpose of holding him accountable for Mayers negligence.

The right of control upon which joint enterprise liability may attach need not arise from the passengers ownership of the car. In Bilsten v. Porter, 33 Colo. App. 208, 516 P.2d 656 (1973), for example, joint enterprise liability was successfully asserted against a teenage passenger riding in his fathers car which was being driven by the teenagers friend without the fathers knowledge or permission.

On the day the automobile accident occurred, out of which the Bilsten case arose, Porter, Albrandt, and one other teenage boy wanted to eat breakfast at a caf during a free period of their school schedules. None of the boys had brought a car to school. In fact, only Porter knew how to drive and he had only an instructional permit. Albrandt, who had ridden to school with an older sister, volunteered the use of that car, which was owned by Albrandts father. His father kept a key hidden under the hood of the car. Albrandt got the key and gave it to Porter, who then drove them to the caf. Albrandts father had specifically forbidden him to use the car for other than emergency purposes or to permit others to drive the car. The accident occurred as the boys returned from the caf.

The Court of Appeals rejected Albrandts argument that he had no right of control because possession of the automobile was obtained without permission of his father. The Court of Appeals held that the right to control necessary for the existence of a joint enterprise is a right existing between the parties to the joint enterprise by virtue of their express or implied agreement. Rights to control existing between a member of the joint enterprise and a third party (Albrandts father) are not relevant to a determination of the existence of the joint enterprise. The Court of Appeals concluded that there was sufficient evidence for the jury reasonably to conclude that Albrandt possessed some measure of control over the operation of the car.

Accidents often involve the use of the family car, but the existence of a familial relationship, standing alone, is probably insufficient to impose vicarious liability through joint venture theory. In Bainbrich v. Wells,[22] the Court of Appeals held that the mere existence of a marital relationship is not sufficient to infer the existence of a joint enterprise in the operation of an automobile.

Wells and the Bainbrichs, husband and wife, were playing as a band at a bar in Leadville, Colorado. The Bainbrichs regularly played together in the band. Wells had been hired that day as a substitute player. After the bar closed, Wells and the Bainbrichs were returning to Denver in an automobile owned and being operated by the husband. The automobile hit an icy spot, skidded across the highway, and struck a guard rail. In his suit for injuries, Wells attempted to assert joint enterprise liability against the wife.[23] The Court of Appeals rejected Wells argument that there was no evidence that the wife exercised or had any authority to exercise control over the automobile owned and being driven by her husband.

CONCLUSION

The joint venture is a common vehicle by which persons pool their resources and labor for both business and social purposes. By doing so, the participants enjoy the advantage of their combination, but they also acquire joint and several liability for the ventures liabilities. Joint ventures can be formed without the parties intending to do so and the possibility of a joint venture relationship should always be considered when there has been participation by others in the activity out of which the liability arises.

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