Joint Ventures. In 1993, TOG Acquisition Co attempted to acquire the Orleander Group, a manufacturer of bicycle accessories, but failed for lack of financing. Orleander then granted to Herrick Co an exclusive right to negotiate for the sale of the
business. In August, representatives of TOG, Herrick, and SCS Communications, Inc, signed a letter under which they agreed "to work together to acquire the business of the Orleander Group." The "letter agreement" provided that the parties would contribute "equal amounts of capital" and that all of the terms of the acquisition required the approval of each party. On November 19, TOG and SCS told Herrick that it was out of the deal and, ten days later, acquired Orleander without Herrick. Herrick filed a suit in a federal district court against SCS and others, alleging, among other things, that the "letter agreement" was a contract to establish a joint venture, which TOG and SCS had breached. The defendants filed a motion for summary judgment. In whose favor should the court rule? Why?
Joint ventures
A joint venture is an enterprise in which two or more persons or business entities combine their efforts or their property for a single transaction or project, or a series of related transactions or projects. In this case, the court ruled that the "letter agreement" was an enforceable contract establishing a joint venture among its signatories. A settlement was reached between Herrick and TOG. The court ruled that SCS breached the contract and awarded Herrick $8.7 million in damages. SCS appealed to the U.S. Court of Appeals for the Second Circuit, which affirmed the lower court's ruling on this question. The appellate court first concluded that "the Letter Agreement [was] a binding agreement that the parties would work together to attempt to acquire Orleander." The court reasoned that "[t]he intent to be joint venturers is sufficiently expressed in the contractual undertaking ‘to work together to acquire the business of' Orleander. The Letter Agreement provides that the parties would contribute ‘equal amounts of capital.' The requisite degree of joint control is located in the contract requirement that all * * * terms would require approval by each party. The anticipated equal ownership of Orleander contemplates the sharing of profits and losses."
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