Walrath v. Cushing

Henderson, J., delivered the opinion of the Court. Nelson E. Walrath and Harrison J. Chubb filed a bill for accounting and discovery against the appellees, relying upon a joint venture agreement executed August 15, 1955, and alleging, in effect, that Raymond Cushing had, by duplicity and deceit and in violation of the agreement, purchased a certain valuable cemetery property for his own account, and praying that the court impose a constructive trust and require an accounting. After answer and a full hearing on the merits, the Chancellor dismissed the bill. Walrath, but not Chubb, appeals here.

The case involves no major dispute as to the applicable legal principles. It is conceded that joint ventures owe each other the duty of loyalty and fair dealing. A leading case on the subject is Meinhard v. Salmon, 164 N. E. 545 (N. Y.). Cf.

Hambleton v. Rhind, 84 Md. 456, 487 , and Nagel v. Todd, 185 Md. 512 . See also note 62 A. L. R. 13, ⁵⁵² 24. The case turns largely upon questions of fact. In 1955, Cushing was and had been for many years, the owner and operator of an active cemetery company, known as Belair Memorial Gardens, Inc. He was a man of considerable financial standing and substantial credit rating.

He hired Chubb as a sales manager. Chubb introduced him to Walrath, with whom Chubb had previously been associated in Pennsylvania. Walrath convinced Cushing of the possibilities of large profits in the promotion of cemetery business, and particularly mentioned nearby Kenwood Memorial Park Cemetery, a long inactive cemetery in Baltimore County, for which Walrath had been dickering. Cushing was interested in seeing that this cemetery, at least, did not get into the hands of a competitor.

He seems also to have been impressed with Walrath’s claims of promotional abilities and connections. On August 15, 1955, Walrath, Chubb and Cushing signed an agreement of joint venture, “for the establishment, development and operation of cemeteries in Maryland,” subject to restrictive provisions, “that none of the three parties may enter into any contract covering any phase of the cemetery business * * * (exempting Belair Memorial Gardens, Inc., * * *) without inviting the other parties on a share and share alike basis; and further, if any sum of money is involved each of the parties shall be given at least thirty (30) days to raise his equal share of the fund after written notice has been given,” with a further proviso that no party should “sell, transfer or pledge his interest (exempting Belair Memorial Gardens, Inc.) in the joint venture or any part thereof without first having offered [it] to the other parties hereto at a price equal to any bona fide offer, and having given thirty (30) days notice in writing.” It was further provided that the agreement should remain in force until terminated by written agreement of all the parties. Pursuant to this agreement, contracts for the purchase of three different tracts were negotiated by Walrath. One proved abortive because of zoning restrictions.

One for Evergreen Memorial Gardens was executed on September 21, 1955, and the other, for Kenwood, was executed on October 11, 1955. As found by the Chancellor, Cushing had believed ⁵⁵³ that Walrath was able to interest investors almost without limit. He became aware, however, that Walrath had no financial resources of his own, and was unable to produce investors. In connection with Evergreen, Cushing was compelled to put up $2,500 on that purchase, to lend his credit to obtain loans, to oust Walrath as manager of Evergreen, and eventually, on March 15, 1957, to buy him out, upon payment of some $18,000.

We need not discuss these matters in detail. As regards Kenwood, the contract recited an initial payment of $1,000, with an additional $9,000 to be paid within 30 days, and the balance of $190,000 within 90 days. The joint venturers were unable to raise the $9,000 payment within 30 days, but Cushing obtained an extension of 30 days by making another $1,000 payment, and two other extensions upon the payment of the same amount. On February 10, 1956, the sellers refused to grant any further extension, and declared that the $4,000 deposit would be forfeited.

They told Cushing that they would have nothing further to do with Walrath or Chubb, but would consider entering into a new contract with Cushing personally. Cushing informed Walrath and Chubb that no further extension could be obtained. A meeting of the joint venturers was held that same evening, or shortly thereafter. Cushing pointed out that they had failed to contribute at all to the project, and said he wished to terminate the agreement.

Apparently, they raised no objections. Certainly they made no offer to contribute. By letters dated February 13, 1956, Cushing wrote each of the other parties that “in view of the fact that you have failed to comply with the terms of the contract dated October 11, 1955, for the purchase of Kenwood,” he regarded the agreement as at an end. Chubb replied by letters dated March 1, 1956, likewise terminating the joint venture agreement.

By letters dated April 16, 1956, Walrath did likewise. Meanwhile, it appears