Why Some Joint Ventures in NY Don't Need a Written Agreement

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I've certainly been asked this question more times than I would have ever thought possible.

Two parties decide to begin a joint venture, and they're such good friends, they do it on a handshake.

Fast forward two years later, and things haven't gone that well; party #2 has taken over the books, and won't even let party #1 see them. (Doesn't that raise an awful lot of red flags?)

At that point, party #1 decides to contact a lawyer to see what his rights are, figuring he probably has none, as they never entered into a written agreement.

It turns out, he's wrong.

Contrary to popular belief, there are circumstances where you can prove that a joint venture existed - even if you never reduced it to a written, signed agreement.

And, quoting from some New York caselaw, here's why:

"The statute of frauds is generally inapplicable to an agreement to create a joint venture (F.S. Intertrade Off. Prods. v Babina, 199 AD2d 95, 96 [1993], lv denied 83 NY2d 757 [1994]) or partnership (Prince v O'Brien, 234 AD2d 12 [1996];Rella v McMahon, 169 AD2d 555 [1991]). This is because, absent any definite term of duration, an oral agreement to form a partnership or joint venture for an indefinite period creates a partnership or joint venture at will (see Shandell v Katz, 95 AD2d 742, 743 [1983] [partnership at will may be dissolved, without liability for breach of contract, on a "moment's notice"];Alnwick v European Micro Holdings, Inc., 281 F Supp 2d 629, 644 [EDNY 2003] ["Where . . . there is no definite term of duration for the joint venture, it may be terminated at will"]).

Indeed, New York's Court of Appeals has specifically held that a plaintiff can prevail upon such a claim, if they set forth facts to establishing such elements as their "contribution of property, skills, etc., control over the venture or a sharing of possible financial losses" (see Matter of Steinbeck v Gerosa, 4 NY2d 302, 317 [1958], appeal dismissed 358 US 39 [1958]).

Two words of caution are in order, however:

First, there are a number of kinds of joint agreements that cannot be unwritten, as they will be barred by the Statute of Frauds. Two prime examples would be agreements to purchase property or that inherently cannot be performed within one year (see General Obligations Law § 5-701; see e.g. Nemelka v Questor Mgt. Co., LLC, 40 AD3d 505 [2007]).

Second, without a formal written agreement the plaintiff may have difficulty proving that the two sides actually reached an agreement, or in legalese, reached "a meeting of the minds" so as to render it an enforceable agreement under New York law (see, e.g., Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326 [2002]). As such, there was no mutual assent or meeting of the minds as to the proposed joint venture (see May v Wilcox, 182 AD2d 939 [1992]).

Why Some Joint Ventures in New York Don't Need a Written Agreement

Contrary to popular belief, there are circumstances where you can prove that a joint venture existed - even if you never reduced it to a written, signed agreement.