This is a question better answered by an attorney. There are many it depends involved here.

Sheilah

posted August 23, 2007

Hi, I found an article on the consumerlawpage website. It does not directly answer your query however gives you some insight into the JV law prevailing in California.
Courtsey: Richard Alexander.

JOINT VENTURES

California, restating the common law of most states, defines a joint venture as

* a relationship which arises from an agreement between two or more persons to undertake some common objective for the benefit of all in pursuit of which each is authorized to act for the other[s]. Such an agreement may be expressed in words or may reasonably be implied from the circumstances. Book of Approved Jury Instructions, No. 13.40.

A joint venture by definition is an undertaking by two or more persons jointly to carry out a single business enterprise for profit. (Nelson v. Abraham (1947) 29 Cal.2d 745, 749.) Joint venturers combine their property, money, efforts, skills or knowledge in some common undertaking, have a community of interest in the venture to jointly participate in the conduct of the business, share profits and losses, and have the right to exert mutual control. (40 Cal.Jur.3d, Joint Ventures, Sections 2-3, pp. 181-182.)

Franchisees and franchisors have the common objective of profiting from the sale of their products and/or services. Satisfying this objective creates profits for both and together they combine their property, money, efforts, skills and knowledge to maximize their sales. Thus, franchisors and franchisees have a community of interest in maximizing sales of their product or service. The franchisor might share in the profits by requiring the franchisee to pay a fee based on gross sales volume. More importantly, when a franchisee increases its sales, the franchisor profits from the strengthening of its own name recognition which directly enhances the value of the franchise system as a whole and gives value to every franchise it sells. (Frew and Jud, The Value of a Real Estate Franchise, 14 A.R.E.U.E.A. Journal 2 (1986).) Sharing of losses is inferred if one member of the venture provides the capital and the other the services. Kovacik v. Reed (1957) 49 Cal.2d 166, 169 states:

* Moreover, where a joint venture involves the contribution of capital by one party and services by the other, neither party is required to reimburse the other for losses sustained. In the event of a loss, the party contributing the capital loses the capital and the one contributing labor loses the value of his efforts.

In the franchise context, a joint venture analysis is advised where the franchisor and franchisee have divided responsibilities and maintained categorical control over different aspects of the venture. Under California law, mutual control exists so long as members of the joint venture participate in the management and operation of the venture even if their respective activities are limited to different aspects of the business. (Universal Sales Corp. v. California Press Manufacturing, supra, 20 Cal.2d at p. 764.) In Universal Sales, the plaintiff contributed advertising and promotional efforts to create a market for a pellet press while the defendant contributed a manufacturing facility. The Universal Sales court found that a joint venture arose from this cooperation which was promotive of the common enterprise and combined the skill and efforts of both the plaintiff and the defendant.

In a franchise relationship, each of the parties has the right to control in some measure the conduct of the other. Our law wisely recognizes division of labor and will find a joint venture exists even '...where the parties have unequal control of operations.' (40 Cal.Jur.3d, Joint Ventures, Sections 2-3, pp. 181-182, citing Banks v. Puma (1951) 37 Cal.2d 838.)

Source: http://consumerlawpage.com/article/franchis.shtml

Links:

• http://consumerlawpage.com/article/franchis.shtml

posted August 23, 2007