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CONTRACTS 12: The court held joint venture agreement was a valid oral agreement.

This action involves an alleged joint venture agreement between plaintiff, defendant, and non-party R with regard to commercial real property in Detroit.

Quitclaim Deed

Plaintiff learned from a friend that a large commercial property in Detroit was for sale for $20,000. According to plaintiff, he talked to defendant and R about purchasing the property and they discussed possible uses. Plaintiff considered leasing the property as a warehouse for his own business and they also discussed using it as a location for a medical-marijuana facility.

Plaintiff explained that the three of them decided to purchase the property and jointly operate or sell it for a profit. He contributed $5,000 toward the purchase price, and defendant and R each contributed $7,500. They were each to have a one third interest. Plaintiff testified that although he contributed less cash, he was to receive an equal share because he found the property. At the time of the purchase, the seller executed a quitclaim deed conveying the property to defendant only.

According to plaintiff, their plan was to have the property held by a new entity in which they would each have a one-third interest, but the entity had not been organized at the time the property was purchased, so the property was placed solely in defendant’s name, with the intent of transferring ownership to the new entity after it was formed. R later sold his interest to defendant, giving defendant a two-thirds interest.

Plaintiff explained that they wanted defendant involved in the project because he had experience rehabilitating and remodeling properties. Per plaintiff’s testimony, it was expected that defendant would initially assume the cost of securing and rehabilitating the property, but plaintiff acknowledged that he would remain liable for one-third of the expenses. Soon after the property was purchased, defendant performed work to secure, clean, and repair it. Defendant estimated that he spent about $30,000.

Operating Agreement

Plaintiff prepared documents, including a proposed operating agreement, for the formation of a new entity that would hold title to the property. However, defendant refused to sign the documents and the parties were unable to work out their differences.

Defendant denied that plaintiff ever acquired any interest in the property. According to defendant, plaintiff was only interested in a business that they might operate at the property, and it was contemplated that plaintiff would receive a one-third interest in that business entity, but not the property.

At the time of trial, defendant had located a buyer who was willing to purchase the property for $265,000.

Trial

The court found that the parties’ agreement included that defendant would have the deed in his name. The court did not award plaintiff an interest in the real property itself but ruled only that plaintiff had a one-third interest in the joint venture that pertained to the operation, development, or ultimate sale of the property.

The trial court found that the parties had formed an agreement for a joint venture to own the subject property and form a business. The court held that the joint venture agreement was valid as an oral agreement. The court found that upon a sale of the property, plaintiff was entitled to one-third of the net sales proceeds, less $30,000 in expenses already advanced by defendant.

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