Henkels & McCoy, Inc. v. Adochio

Facts

Red Hawk North Associates, L.P. was a New Jersey limited partnership with G & A Development Corporation as its general partner and nineteen limited partners. Red Hawk and Cedar Ridge Development Corporation formed the Chestnut Woods Partnership as a joint venture to develop residential homes in Bucks County, Pennsylvania. Under this arrangement, Red Hawk would provide funding while Cedar Ridge would provide the land and act as managing partner and general contractor. In December 1988, Cedar Ridge, as general contractor for Chestnut Woods, contracted with Henkels & McCoy to install storm and sanitary sewer systems for $300,270. Simultaneously, Red Hawk was involved in another joint venture with Cedar Ridge called Timber Knolls, which never commenced operations. Cedar Ridge executed promissory notes to return Red Hawk’s $2.3 million capital contribution to the Timber Knolls project. Between January and July 1989, Cedar Ridge made payments to Red Hawk on these notes, and G & A distributed these payments to the Red Hawk limited partners totaling $492,000. During this same period, Henkels was performing work under its contract with Cedar Ridge. Cedar Ridge failed to pay Henkels in full, leaving an unpaid balance of $237,943. After obtaining judgments against Cedar Ridge, Red Hawk, and G & A that could not be satisfied, Henkels sued the limited partners to recover the capital distributions they had received.