Dissolution and Termination of Joint Venture
The dissolution and termination of a joint venture are governed by partnership law relating to dissolution and termination[i]. In areas where the Uniform Partnership Act (Act) is applicable, dissolution and termination of a joint venture is governed by relevant provisions contained in Act[ii]. However if there is any written agreement made by joint venture parties to the contrary, then such written agreement would determine a joint venture’s dissolution.
A joint venture can be terminated in the following situations:
- if there is an agreement between joint venture parties to terminate a joint venture[iii];
- if it is apparent that a joint venture is not profitable[iv];
- on death of a joint venture member if service offered by such joint venture member cannot be substituted by another person.
A joint venture can also be dissolved by judicial dissolution. Under the Act, a court can grant a judicial dissolution on the following grounds[v]:
- if a joint venture member is shown to be of unsound mind;
- if there is disharmony and dissension among parties to a joint venture;
- if a joint venture member becomes in any other way incapable of performing his/her part of a joint venture contract;
- if a joint venture member has been guilty of any conduct that may in turn be prejudicial to a joint venture business;
- if a joint venture member willfully or persistently commits a breach of a joint venture agreement;
- if a joint venture business can only be carried on at a loss[vi]; and
- on other circumstances that render a dissolution equitable.
However, courts have observed that judicial dissolution of a joint venture corporation having two 50% stockholders is discretionary and it is to be decided according to the circumstances arising in the particular case[vii].
Generally, a joint venture agreement would contain a date for its termination. Where a joint venture is established for a particular period, such joint venture would get terminated by expiration of that period. But affairs relating to winding up all claims and obligations and accounting will continue even after such termination[viii].
Where parties to a joint venture do not enter into any agreement as to termination of that joint venture, a joint venture can be terminated at will[ix]. A joint venture can be dissolved by will, by conduct, or words of the parties to the joint venture agreement. If there is mutual consent, then a joint venture can be terminated at any time[x].
In the case where a joint venture is established for a particular purpose, then such joint venture will terminate on satisfaction of such objective. And if satisfaction of such objective is impracticable then a joint venture would terminate at the point of of impracticability.
In order to terminate a joint venture, the following conditions must be satisfied:
- there must be an intention to dissolve the joint venture enterprise; and
- such intention must be communicated to all parties to a contract by unequivocal acts[xi]; or
- if there is an agreement between parties as to termination, then notice must be served to all joint venture members according to the joint venture agreement[xii].
However, some courts have observed that there is no requirement that notice of dissolution be communicated to each and every member of a joint venture[xiii].
Upon dissolution, a surviving joint venturer is entitled to the joint venture property’s possession and is also authorized to wind up its business. Where no one takes possession, a joint venture property will be sold. However in the case of thoroughbred race horses, sale will be conducted only after determining whether any party to a joint venture had authority to continue the venture even after termination. Sometimes courts will order the liquidation of the business as well.
However, a joint venture will continue to exist even after its dissolution, if a joint venture is liable to pay any damages for any joint venture activities. Thus, joint venture members are jointly liable for injuries to third parties due to negligence arising from their mutual undertaking. Joint venture members can be sued individually and found liable for damages caused by a joint venture[xiv].
Without dissolving the entire joint venture enterprise, a party to a joint venture can be terminated from a joint venture if s/he refuses to substantially perform his/her obligations[xv]. Provided notice of relationship, termination must be served to such joint venture party[xvi].
[i] Costa v. Borges, 145 Idaho 353 (Idaho 2008).
[ii] Robinson v. Nussbaum, 11 F. Supp. 2d 1 (D.D.C. 1997).
[iii] N. River Ins. Co. v. Spain Oil Corp., 135 Misc. 2d 480 (N.Y. Sup. Ct. 1987).
[iv] Gundry v. Scrimger, 235 Mich. 62 (Mich. 1926).
[v] BPR Group Ltd. P’ship v. Bendetson, 453 Mass. 853 (Mass. 2009).
[vi] Metz v. Commercial Bank, 45 S.C. 216 (S.C. 1895).
[vii] Hopkins v. Hopkins, 1982 Del. Ch. LEXIS 476 (Del. Ch. Sept. 21, 1982).
[viii] Stahlex-Interhandel v. Western Union Fin. Servs. E. Eur. Ltd., 279 F. Supp. 2d 221 (S.D.N.Y. 2003).
[ix] Kidz Cloz, Inc. v. Officially for Kids, Inc., 320 F. Supp. 2d 164 (S.D.N.Y. 2004).
[x] Jones v. Jones, 15 Misc. 2d 960 (N.Y. Sup. Ct. 1958).
[xi] Brady v. Powers, 112 A.D. 845 (N.Y. App. Div. 1906).
[xii] Jones v. Jones, 15 Misc. 2d 960 (N.Y. Sup. Ct. 1958).
[xiii] Thomas v. American Nat’l Bank, 704 S.W.2d 321 (Tex. 1986).
[xiv] Clawson v. General Ins. Co., 90 Idaho 424 (Idaho 1966).
[xv] Broadwell v. Flynn, 189 Okla. 620 (Okla. 1941).
[xvi] Hardegree v. Zink, 1963 OK 27 (Okla. 1963).