Real Estate Law Blog

Lois Turner had an idea on how to create a better home-use airbrush makeup system.  She and Michael Benjamin, her purported partner, communicated extensively about becoming partners to produce the product.  They “created a blog, which contained information related to the ownership structure of the proposed company (under which … each [would] hold one-hundred shares of the three-hundred share company, with investor shares to be determined), the roles and responsibilities of the … individuals, the voting requirements for company decisions, buy-out options, and how profits would be shared if the company dissolved”.  But the blog left several items “to be determined” and did not address how the partners would fund losses from the venture.  The blog was updated regularly to reflect undated agreements but, while a lawyer was consulted, no formal partnership or joint venture agreement was ever prepared.  Eventually Benjamin obtained financing from his family and created a similar product without Turner.  Turner sued and in Turner v. Temptu Inc. U.S. District Judge Jesse Furman granted Benjamin summary judgment.

The key parts of the ruling applying to New York law governing partnerships and joint ventures are:

1.  Despite the modern use of a blog to record the proposed terms of the deal, the blog was never "signed" and the plaintiff admitted that a definitive agreement was not signed.

2.  Since an oral partnership can be enforceable in certain circumstances (see my post of 3/1/13), the Court needed to review the terms to see if the blog was evidence of an oral agreement binding under New York law and it held it was not.  The Court citing Steinbeck v. Gerosa, 151 N.E.2d 170 (N.Y. 1958), an opinion interpreting a tax statute, that under New York law, “an indispensable essential of a contract of partnership or joint venture, both under common law and statutory law, is a mutual promise or undertaking of the parties to share in the profits of the business and submit to the burden of making good the losses.”

Since the blog did not discuss how losses were to be funded, the Court held that the terms of the blog were insufficient to create a binding oral agreement.

So, to bring back the example in my blog re the statute of frauds, a reference to “we’re 50/50 partners” or something similar is insufficient to make an oral agreement binding.  The agreement must include the terms of how losses will be funded.