Kovacik v. Reed

Brief Fact Summary. Plaintiff, Stephen Kovacik, solicited Defendant, Henry Reed, to enter a partnership wherein Plaintiff provided the money and Defendant provided the labor. Plaintiff sought to collect half of the money that he contends the business lost during their partnership.

Synopsis of Rule of Law. In a partnership wherein one partner contributes capital and the other labor, the partner contributing capital can not hold the other accountable for money lost, just as the partner responsible for services can not hold the other responsible for any losses he suffered.

Facts. Plaintiff was a building contractor, and Defendant was a job superintendent and estimator for several companies. Plaintiff solicited Defendant to enter a partnership to do kitchen remodeling work. Plaintiff agreed to supply the financing if Plaintiff agreed to perform the work, and they would slit the profits equally. The parties did not discuss how potential losses would be allocated. When the business became unprofitable, Plaintiff sought to collect one half of the losses from Defendant.

Issue. The issue is whether partners who agreed to split profits equally are also equally responsible for financial losses.

Held. Plaintiff is not entitled to collect any money from Defendant for operating losses. The agreement did not expressly allocate each party’s liabilities in the event of an operating loss, and therefore it is assumed that the partner providing the financing is responsible for any financial losses. The other partner is responsible for the potential loss of any services rendered.

Discussion. Plaintiff was not required to perform any services to the extent that Defendant had to perform. It would be counterintuitive to believe that Defendant would have agreed to perform all the labor while still being liable for half of any losses.