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A Mississippi court has considered whether a real estate licensee was in a joint venture with an individual or in a principal/agent relationship.
In 1985, Pamela Lindsey ("Owner") quit her job as a nurse after receiving a substantial payment for accidental injuries she had received. Looking for investment opportunities, the Owner met with real estate licensee Debbie Wheat ("Wheat"). The Owner and Licensee entered into an arrangement where the Owner purchased two parcels of land and Wheat would direct the construction of a "spec" house on each of the lots. They also opened a joint bank account, and the Owner gave Wheat a $15,000 loan. The parties did not memorialize their relationship in a written document.
In 1992, the Owner transferred ownership of a lot to Wheat so she could begin construction of the first home. Construction began on the first home, and the first home was eventually sold in 1998. At the closing, all of the sale proceeds were transferred to the Owner, despite the fact that all of the closing documents referred to Wheat as the seller. Wheat's brokerage firm was paid a sales commission from the transaction.
Following the completion of the first house, the Owner transferred the second lot to Wheat. Upon transfer, Wheat negotiated a $100,000 loan from Lamar Bank ("Bank") secured by the second property. The loan proceeds were deposited in the joint bank account. Wheat then transferred the second lot back to the Owner but withdrew $81,000 from the joint bank account. Wheat never returned those funds to the joint bank account. When the loan payments were not made, the Bank eventually foreclosed on the second lot, finished construction of the second home, and sold the property for a small deficiency.
The Owner filed a lawsuit against Wheat, seeking damages for breach of contract and an accounting of funds. Wheat filed a counterclaim against the Owner. The trial court found that the Owner and Wheat were in a principal/agent relationship and also Wheat owed the Owner a fiduciary duty. The court awarded the Owner $91,266.02 in damages, and Wheat appealed.
The Court of Appeals of Mississippi affirmed the award of the trial court. The main issue that the court needed to decide was whether the evidence before the trial court supported the conclusion that the Owner and Wheat were in a principal/agent relationship. Wheat argued that the parties were in a joint venture.
Looking at Mississippi law, the court found that a joint venture was an association of persons created to carry out a single business enterprise for profit and the enterprise is a combination of their property, money, efforts, and skills. The joint venturers share in all profits and losses from the venture, and each has a voice in the management of the venture. A requirement for finding a joint venture is that each party must have a proprietary interest in the venture. Meanwhile, the court stated that real estate licensees are in an agency relationship with their clients, and have a fiduciary duty to act for the benefit of their principal in all matters related to the agency relationship.
The Owner stated in her testimony that Wheat was functioning as her representative to find properties which could be bought, repaired, and resold. Wheat was also responsible for marketing the properties for sale. For her efforts, Wheat was paid a commission "or other appropriate compensation". Wheat testified that the parties were in a joint venture, splitting any profits made from the resale of properties.
The court agreed with the trial court that the relationship of the parties was more of a principal/agent relationship. The court found that the evidence did not show that the parties shared profits, nor did the parties share commissions collected by Wheat. The Owner contributed all of the money used to purchase and develop the properties, and only money collected by Wheat was the commissions from the sales. Wheat herself testified that she had used the $81,000 taken from the bank account for her own personal benefit. Since the court found that the parties were in a fiduciary relationship, the court ruled that she was liable for this money as well as the unpaid loan amounts. Therefore, the court affirmed the judgment of the lower court.
Wheat v. Lindsley, 906 So.2d 782 (Miss. Ct. App. 2004).