Wednesday, March 17, 2021

The Statute of Frauds Does Not Apply to the Formation of a Partnership to Develop Real Property

 The Statute of Frauds Does Not Apply to the Formation of a Partnership to Develop Real Property

         In this 2021 decision, the court considered and rejected a pair of arguments that a complaint asserting the existence of a partnership should be dismissed. Initially, the defendants’ argument that the Statute of Frauds barred the formation of the partnership was rejected.  Second, the plaintiff’s assertion of the elements of a partnership was found sufficient.  Haymaker Dev. Co., LLC v. C.M. Gatton, Civil Action No. 5: 20-478-DCR, 2021 WL 297128 (E.D. Ky. Jan. 28, 2021).

         The alleged partnership (or joint venture [as if there is a distinction]) related to the purchase and development of real property.  The Statute of Frauds (KRS § 371.010) “generally requires contracts conveying or transferring an interest in real property to be in writing.” Id., *4. The court would hold, however, that this rule is inapplicable as to the formation of a partnership.

Indeed, an oral agreement to enter a partnership or joint venture for the purpose of dealing in real estate may be enforced even though it is not in writing. Jones v. Nickell, 179 S.W.2d 195, 196-97 (Ky. 1944). See also Garth v. Davis & Johnson, 85 S.W. 692, 692 (Ky. 1905) (“An agreement to become partners in dealing in real estate is neither a contract to buy nor a contract to sell real estate as between the parties to it. As far as the formation of the co-partnership is concerned, the title to real estate is no wise affected by the making of the agreement. The terms of the agreement, the mutual undertakings by the partners as between themselves as to what each will contribute, and the interests of each in the profits of their undertaking, are matters not necessarily affected by the statute.”).

As to the defense that the plaintiff had not sufficiently plead the elements of a partnership, the court found that the standard for defeating a motion to dismiss was satisfied.

The defendants contend that Haymaker has not alleged sufficient facts to demonstrate that the parties agreed to engage in a partnership or joint venture. To determine whether it has, it is necessary to define these terms. A partnership is the association of two or more persons to carry on as co-owners of a business for profit, whether or not the persons intend to form a partnership. K.R.S. § 362.1-202(1). “A joint venture is a special type of partnership, which Kentucky courts have defined as ‘an informal association or two or more persons, partaking of the nature of a partnership, usually, but not always, limited to a single transaction in which the participants combine their money, efforts, skill, and knowledge for gain, with each sharing in the expenses and profits or losses.” CASS JV, LLC v. Host Intern., Inc., 2014 WL 3955366 (W.D. Ky. Aug. 13, 2014) (quoting Roethke v. Sanger, 68 S.W. 3d 352, 364 (Ky. 2001)). A joint venture is treated like an informal partnership and is governed by principles of partnership law in that venture partners owe fiduciary duties to one another and the joint venture. Id. (citing Abbott v. Chesley, 413 S.W.3d 589, 604-04 (Ky. 2013)).


There is no bright-line test for determining whether a partnership exists. Instead, each case is assessed individually based on the totality of the circumstances. Thale v. Collector Imports, LLC, 2008 WL 4386769, at *3 (W.D. Ky. Sept. 23, 2008). Kentucky courts have considered the following factors: sharing of profits and losses; community of property; and control over the conduct of the business. See Roy C. Whayne Supply Co. v. McGowan, 280 S.W. 491, 493 (Ky. 1926); see also K.R.S. § 362.180. Kentucky case law contemplates that whether a partnership exists is a question of fact to be determined by a jury. Thale, 2008 WL 4386769, at *4 (collecting cases).


At this stage of the litigation, Haymaker has alleged sufficient facts to establish that Haymaker, Gatton, and the Trust entered into a partnership or joint venture to develop Hamburg and Coventry. Specifically, Haymaker contends that it negotiated purchases of property on behalf of the Trust, which the Trust then purchased and held on behalf of the partnership or joint venture.4 According to Haymaker, the parties agreed that the Trust would then convey the property to Haymaker as it was developed. In addition, Haymaker alleges that it put forth substantial effort and resources in developing the property. Upon sale of the property, the parties would share the profits.


Id., *5.

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