EASTERN ELECTRICAL COMPANY vs. TAYLOR WOODROW BLITMAN CONSTRUCTION CORPORATION.

CUTTER, J. On May 19, 1971, Eastern Electrical Company (Eastern) entered into a written subcontract with Taylor-South Company (not incorporated, so far as the record shows), the name of a joint venture set out in Art. II of a

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1970 joint venture agreement between Taylor Woodrow Blitman Construction Corp. (Taylor), a Delaware corporation, and South Construction Co., Inc. (South), a Massachusetts corporation. The joint venture was for the purpose of constructing an apartment complex in Brockton for Southfield Gardens Company (the owner), a limited partnership formed under G. L. c. 109. This was to be done under a Federal Housing Administration cost-plus-a-fixed-fee contract. Eastern's fixed-price subcontract was for the electrical work on the project. It was signed for Eastern by its president and by Taylor-South Company as follows:

Taylor-South Company

By: /s/ Harold G. Basser

For: Taylor Woodrow Blitman Construction Corp.

By /s/ Lester Gross (L.S.)

Taylor-South Company

For: South Construction Co., Inc.

Harold G. Basser was a vice president of Taylor. The record does not show what office Lester Gross held in South.

Eastern has fully performed its subcontract and has not been paid $11,024.36, the amount remaining due. An action to recover from Taylor the amount due was brought by Eastern in 1974. South was joined as a codefendant on March 5, 1975. On March 11, 1976, Eastern's complaint against South was dismissed because of Eastern's failure to answer interrogatories asked by South. It was not until May 15, 1979, that Eastern sought to have this dismissal vacated. Mass.R.Civ.P. 60(b). See note 12, infra. The motion was denied on May 31, 1979.

Eastern on June 11, 1979, for a second time, [Note 1] sought summary judgment against Taylor for the balance due on the

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subcontract. The trial judge allowed the motion. In his memorandum of decision he stated that Taylor's only defense to Eastern's action was the contention "that since its liability to Eastern is joint and not several, the dismissal of the action against its co-venturer South causes it to abate against Taylor as well." The trial judge properly rejected this contention.

The trial judge assumed (on principles adopted by some text writers, see part 2, infra) that "[j]oint venturers are actually partners." He correctly noted that, under the Uniform Partnership Act, G. L. c. 108A, partners are jointly and severally liable (a) for certain torts, c. 108A, Section 13, and (b) for a partner's misapplication of money, c. 108A, Section 14. See Section 15(a). He also assumed that (if the members of a joint venture are to be treated as partners and as subject to c. 108A) joint venturers are only jointly liable for all other debts and obligations of the joint venture. See Section 15(b). He then (quoting from a Reporter's note to Restatement [Second] of Judgments Section 109, at 91 [Tent. Draft No. 4, 1977]) assumed that the Uniform Partnership Act Section 15(b), dealing with true partnerships, also requires that the liability of the joint venture and its participants to Eastern be treated as joint (and not as joint and several), subject to the application of a principle mentioned in Balley v. Davis, 75 Idaho 73, 77 (1954).

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In the Balley case, the Idaho court was considering the plaintiff's contract with a partnership of three men to drill a well on the plaintiffs' land. The plaintiffs dismissed with prejudice the action against two partners, but continued to press for recovery against a partner who had not appeared in the action and had been defaulted (at 74-75). It was held that the dismissal of the action against two partners operated to dismiss the action against all of the partners and thereafter the partnership and its property could not be bound. The Idaho court in the Balley case said (at 77): "The partnership obligation of appellants being a joint obligation and not a joint and several obligation, the suit must run against all the partners and the judgment must be against all the partners jointly or against none of them save and except where one partner has a defense personal to himself . . . . 68 C.J.S., Partnership, Section 235 b., page 728; 40 Am.Jur., Partnership, Section 446, pages 441-2" (emphasis supplied).

The trial judge in the present case ruled that "when Eastern failed to respond to South's interrogatories, South, by virtue of Mass.R.Civ.P. [33 and] 37 then had `a defense personal to [itself]'" [Note 2] and that when "that defense resulted in dismissal of Eastern's claim as to South, Eastern could, nevertheless, pursue its claim against Taylor." The trial judge then ordered judgment for Eastern against Taylor for the whole unpaid balance owed to Eastern. He commented that this was "a common sense result. Eastern having satisfactorily performed its contract and conferred a benefit on

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the joint venture, it ought to be paid." He went on to suggest that Taylor "may satisfy the judgment out of the assets of the joint venture and, to the extent [that] it must satisfy the judgment out of its own assets, may treat such payment as a contribution to the joint venture in any future accounting between Taylor and South."

We agree that the trial judge reached the just, "common sense result." Further analysis, however, is required. Among issues which must be considered are (a) the extent to which the Uniform Partnership Act (G. L. c. 108A) has any mandatory application to this joint venture, Taylor-South; (b) whether, under current general principles of contract law, the obligation of Taylor and South to Eastern on its subcontract must be regarded as joint or may be treated as joint and several; and (c) whether, under modern procedures, the judgment against Eastern in its complaint against South is sufficiently a defense personal to South as to allow recovery by Eastern against Taylor (to which Eastern equitably is entitled).

1. The Massachusetts law concerning joint ventures is not fully developed, especially where a corporation or corporations purport to be coventurers. In Whittenton Mills v. Upton, 10 Gray 582, 598 (1858), it was held that the corporation, a party to that case, could not form a partnership with an individual. See Rosenblum v. Springfield Prod. Brokerage Co., 243 Mass. 111, 115-117 (1922). The Whittenton Mills decision, and others like it elsewhere, have led to the use of joint ventures for quasi partnership operations of two or more corporations. In Mendelsohn v. Leather Mfg. Corp., 326 Mass. 226, 233 (1950), it was said of a joint venture, "The exact nature of this relationship has never been precisely defined in our decisions and we make no attempt to do so now. For present purposes, it is sufficient to state that it resembles a partnership and has many of its attributes." See Cardullo v. Landau, 329 Mass. 5, 8-9 (1952); Air Technology Corp. v. General Elec. Co., 347 Mass. 613, 624-626 (1964), [Note 3] where the subsidiary facts did not indicate

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that the arrangement there considered "was to be a joint venture within that indefinite term's ordinary usage." [Note 4]

2. Recent texts and some decided cases (see e.g. Wheatley v. Carl Halvorson, Inc., 213 Or. 228, 235 [1958]) have tended to regard joint ventures as wholly or substantially partnerships in many respects here material. Undoubtedly, there has been a trend in that direction. See 2 Williston, Section 318B, at 585 et seq., Section 318C, at 623-624; Barrett & Seago, Partners and Partnerships, Law and Taxation c. 2, Sections 7, 8 (1956 and 1974 supp.). This, however, does not necessarily mean that the Uniform Partnership Act (G. L. c. 108A; see St. 1922, c. 486) governs directly the activities and liabilities of joint ventures and their members.

3. It would be possible, perhaps, to construe G. L. c. 108A, Section 6, and c. 4, Section 7, Twenty-third, as subjecting corporate joint ventures to the statute. General Laws c. 108A, Section 6, reads in part: "(1) A partnership is an association of two or more persons to carry on as co-owners a business for profit . . ." (emphasis supplied). "Person" is not defined in c. 108A, Section 4. It is defined, however, in G. L. c. 4, Section 7, which reads in part, "In construing statutes the following words shall have the meanings herein given, unless a contrary intention clearly appears . . . Twenty-third, `Person' . . . shall include corporations, societies, associations and partnerships." If Section 6 were to be interpreted as including corporations within the term "persons," then it might be said that c. 108A had general application to at least some joint ventures, although the limited time term and scope of most joint ventures, even then, might prevent

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that result. See Cardullo v. Landau, 329 Mass. 5, 8 (1952), where it was said of "a joint adventure" that it "differs . . . from a partnership in that it is ordinarily, although not necessarily, limited to a single enterprise, whereas a partnership is usually formed for the transaction of a general business. As between the parties, as in the case of a partnership, the relationship of joint adventurers is a matter of intent and arises only when they intend to associate themselves as such."

4. At least one Massachusetts decision did not apply the Uniform Partnership Act so as to override other provisions of general law. See Edgerly v. Equitable Life Assur. Soc., 287 Mass. 238, 242 (1934), where the uniform statute was held not to have "changed the previously existing law with respect to the incapacity of a married woman to make a contract of partnership with her husband." At 243, the same principle was extended to a joint venture. We are of the opinion that the Uniform Act also should not be interpreted as having direct statutory and mandatory application to at least joint ventures which include corporate participants, in the absence of some explicit legislative extension of the act's coverage to such joint ventures. See 2 Williston, Section 318B, at 601. To give the act such application would cause it to override what remains (after G. L. c. 156B, Section 9A, inserted by St. 1969, c. 392, Section 7) of the Whittenton Mills case (see part 1, supra). Accordingly, we treat the uniform act as having relevance to joint ventures with corporate participants only by way of analogy and only when the use of the analogy in particular circumstances will achieve a just result.

5. In the Edgerly case (part 4, supra), it was said that the "relation of joint adventurers, like a partnership, is created by a contract express or implied and, without such a contract, no liability for debts arises out of the transactions, unless . . . there is some independent ground of liability." 287 Mass. at 243. And see the language from the Cardullo case quoted above (at the end of part 3, supra). See also Morrison v. Morrison, 320 Mass. 133, 134 (1946). As with other

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contracts, one which may create a joint venture will be examined to see what the objective undertakings of the parties were. See Shinberg v. Garfinkle, 361 Mass. 109, 114 (1972); St. Regis Paper Co. v. Stuart, 214 F.2d 762, 766 (1st Cir. 1954), cert. denied, 348 U.S. 915 (1955). See also Kravitz v. Pressman, Frohlich & Frost, Inc., 447 F.Supp. 203, 209 (D. Mass. 1978).

6. The 1970 joint venture agreement and the subcontract with Eastern contain various provisions which suggest that the joint venturers should be treated as having incurred joint and several liability, rather than merely joint liability. We deal first with the joint venture agreement.

7. In the joint venture agreement the duties of the venturers are sharply contrasted and cover two clearly defined and largely separate areas of responsibility. (a) Taylor, described in the agreement as "Builders," is assigned all "[c]onstruction [m]anagement [s]ervices for the project on behalf of the [j]oint [v]enture," including "the direct supervision of all subcontractors." Taylor warrants that all construction work will comply with governmental requirements "within the scope of the [p]lans and [s]pecifications" and that the total cost will not exceed a stipulated cash upset price. Taylor further agrees to indemnify South, described in the joint venture agreement as "coordinator," for the amount of any excess. Taylor also undertakes to maintain safety precautions and to hold South harmless for any loss from injuries to persons or damage to property not reimbursed in full by insurance. Taylor is to pay any penalties for delay for which the joint venture may be liable. (b) South, as "coordinator," is to "have general supervision of the entire contract [with Southfield Gardens Company] on behalf of the [o]wner" and act as liaison with various governmental authorities interested in the project. South is to make available certain engineering talent in "order properly to utilize the experience of" South with the type of work involved. (c) Other provisions of the joint venture agreement point to Taylor as having special responsibility for

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subcontracts [Note 5] and as being in a subordinate position to South in various important respects. [Note 6] In the matter of payment for the work of the joint venturers, instead of usual partnership arrangements for sharing of profits and losses (which may or may not be realized), the agreement speaks of "compensation" to each joint venturer. [Note 7] (d) Finally, Art. XV [Note 8] clearly shows that no general partnership was intended by the joint venture agreement.

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8. The 1970 joint venture agreement thus in various respects establishes a relationship inconsistent with, and unlike, the usual fully cooperative, quasi fiduciary undertakings to each other of partners in a partnership or quasi partnership operation or of joint venturers. Compare Kleinschmidt v. United States, 146 F.Supp. 253, 256 (D. Mass. 1956); Kravitz v. Pressman, Frohlich & Frost, Inc., 447 F.Supp. 203, 209-210 (D. Mass. 1978). Instead, the agreement reveals separate corporate entities, one of which is, at least to some extent, under common management with its owner-customer, undertaking largely separate specified parts of a single project. The arrangement, as has been noted, leaves South, to some extent representing the owner, largely controlling the enterprise and substantially protected by the indemnification provisions imposed upon Taylor. (See United States ex rel. Altman v. Young Lumber Co., 376 F.Supp. 1290, 1296 [D. S.C. 1974]). These considerations certainly support the conclusion that Taylor-South cannot appropriately be treated as a partnership between Taylor and South, governed by G. L. c. 108A, Section 15(b). These considerations also support holding each joint venturer liable severally, as well as jointly, at least for the portions of the project for which they respectively have special responsibility, and in which their respective interests may be in major respects opposed to the interests of the other venturer. The interests of South also may be antagonistic to the interests of subcontractors who (if not in default) are entitled to support from their general contractor in moving for prompt payment from the owner under the cost-plus-a-fixed-fee contract. See note 1, supra.

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9. We turn next to the subcontract with Eastern. If Taylor's liability under that is not directly controlled by c. 108A, Section 15(b), we should consider whether Taylor has incurred under it in accordance with general contract principles, separate corporate liability to Eastern, even though it is stated to be a subcontract of the joint venture. As already pointed out, the subcontract of the joint venture is signed in behalf of the joint venture and of each joint venturer as required by the joint venture agreement (Art. VII, 2[b]). The liability is thus stated in the form of an agreement of a singular contractor but signed by plural obligors. [Note 9] This form of signature has some tendency to indicate that each joint venturer was speaking for itself, although each signed also for "Taylor-South Company." There is no express statement in the agreement that the parties intended to be bound only jointly, a statement which could easily have been inserted if Taylor-South and its corporate components had wished fairly to warn its subcontractor of the hazards, under the older cases, inherent in accepting joint liability as opposed to "joint and several" liability. The joint venturers also gave some indication of separate, several corporate responsibility for the amount to become due to Eastern by making the subcontract "for themselves, their . . . successors and assigns" (emphasis supplied), a form which may have some tendency (see note 9, supra) to show separate and comprehensive assumption of liability.

10. Professor Corbin has pointed out that the distinction between "joint" and "joint and several" obligations largely grew out of now superseded procedural considerations. See 4 Corbin Sections 925-926, 928, 931. He would favor total abolition

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of the distinction now that modern flexible procedures have been adopted generally which remove procedural obstacles to full several, as well as joint, liability of co-obligors for a single performance. See 4 Corbin Sections 923-926, 931, at 696, 699, 702, 709, 733. The distinction all too frequently may result in serious unfairness because of the rule that the voluntary discharge or release of one joint obligor discharges other joint obligors. Professor Corbin properly refers to this "as a trap into which many an obligee has fallen." [Note 10] Id. Section 936, at 736.

11. The new Restatement (Second) of Contracts, tentative Section 112(2) and Comments b and c (see note 9, supra), does not go as far as Professor Corbin would go. It adopts the view that whether a particular contract imports a joint or a joint and several obligation as a matter of interpretation. Tentative Section 112(2) reads: "Where two or more parties to a contract promise the same performance to the same promisee, they incur only a joint duty unless an intention is manifested to create several duties or joint and several duties." Comment b to this provision refers to considerations which would have justified adopting in the Restatement an even more drastic weakening of the unfairness inherent in many aspects of "joint" obligations. Comment b reads: "The question whether promisors of the same performance undertake `several' duties in addition to or instead of a `joint' duty has traditionally been treated as a question of the application of deductions from legal concepts rather than as a question of manifested intention. Where a `joint' duty differs from `joint and several' duties, the joint duty is invariably

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less advantageous to the promisee, while the advantage to the promisor does not normally serve any legitimate interest. Joint duties, as distinguished from joint and several duties, are likely to reflect ignorance or inadvertence on the part of the promisee. But in the absence of statute both common-law courts and courts of equity long held promises of the same performance to be joint only unless the promises took a linguistic form appropriate to several duties. The modern tendency is to treat the question as one of interpretation and therefore to give weight to manifestations of contrary intention in whatever form. Subsection (2) reflects this tendency" [Note 11] (emphasis supplied).

12. In the light of the considerations just discussed, there is strong reason for treating the obligations to Eastern of the joint venturers, Taylor and South, as several as well as joint. First, Taylor, under the joint venture agreements had primary responsibility for subcontracts. Whether Eastern knew of this aspect of the 1970 joint venture agreement does not appear from the record. Even if it did not know of the 1970 agreement, Eastern undoubtedly dealt primarily with Taylor, which was in charge of construction, and probably looked for payment primarily to Taylor which it sued first. Second, there is substantial ground (see part 11, supra) for treating the distinction between "joint" and "joint and several" obligations as having no continuing usefulness under modern Massachusetts procedures. Either of these grounds

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of action would achieve the equitable purpose of assuring that Eastern receive payment for work which it has fully performed.

13. We do not rest our decision on the grounds discussed above in parts 9 to 12, for to do so might involve more sweeping rejection of long standing (but probably outworn) authorities than is now necessary. Consideration of those possible grounds of decision, however, convinces us that limits should be placed upon application of the old rule (assuming that it should be applied at all) that at least a voluntary discharge or release of one joint obligor has the effect of releasing all joint obligors. As already noted, the trial judge treated the defense asserted by Taylor (based on South's 1976 judgment of dismissal of Eastern's complaint against it) [Note 12] as a defense personal to South within authorities such as those cited above in note 2. This treatment was appropriate. Nothing in the record indicates that South, or indeed the owner, prior to the 1976 judgment, had any just claim on the merits that Eastern had not fully performed its sub-contract. Nevertheless, the 1976 default judgment of dismissal, has the effect, under Mass.R.Civ.P. 41(b) (3), 365 Mass. 805 (1974), of "an adjudication on the merits." See Nasser v. Isthmian Lines, 331 F.2d 124, 127 (2d Cir. 1964). Of course, the default

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judgment involved no actual consideration of the merits of Eastern's claim but was imposed under Mass.R.Civ.P. 33 and 37, only because of Eastern's failure to answer South's interrogatories. In any event, the resulting discharge of South was in no sense either voluntary (see 4 Corbin Section 931, at 736) or intentional. At most it should prevent further direct proceedings by Eastern against South and reasonably should be treated much as would a release because South had become bankrupt or had not been served because not subject to service within the Commonwealth. [Note 13] Further proceedings against Taylor would not have been precluded by a judgment of dismissal in favor of South for either such reason. See 4 Corbin Section 929, and note 2, supra. This holding may be a minor extension of these authorities which (as

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Taylor contends) relate largely to the status of persons asserted to have a defense personal to them. The extension, if it be one, seems to us a reasonable way of avoiding grossly unjust and unintended consequences of procedural dismissals, like the 1976 purely procedural judgment of dismissal of the claim against South.

14. The present record does not enable us to decide, as the trial judge suggested might be appropriate, whether Taylor, when it pays the judgment now to be entered against it in favor of Eastern, can charge the amount so paid as a construction cost, for which Taylor is entitled to credit in the settlement of the accounts of the joint venture and between the participants in the joint venture and the owner. That will depend on the facts concerning such matters as (a) what amounts the joint venture has been paid or is owed by the owner, (b) whether the upset price has been exceeded, (c) what each joint venturer has had in "compensation" or may have had to bear in losses, and (d) the extent to which South and the owner are or were under common management. The relevant facts are not fully before us. The account between the joint venturers will depend on the 1970 joint venture contract and on applying its provisions in a manner consistent with whatever fiduciary obligations have been assumed by Taylor and South under it, with respect to each other. An important consideration may well be whether South or the owner, or both, will be unjustly enriched if Taylor is not given credit for its payment of the judgment.

Judgment affirmed.