Busick v. Stoetzl
70 Cal. Rptr. 581, 264 Cal.App.2d 736, 1968 Cal. App. LEXIS 2140 (1968)
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Rule of Law:
An agreement to compensate a partner for services rendered to the partnership may be implied from the conduct of the partners, particularly where one partner assumes full management responsibilities and the other partners, with full knowledge of the salary payments, acquiesce and fail to object.
Facts:
- Valley Feed & Fuel Company was a partnership initially composed of three husband-and-wife pairs: the Betters (Anna and Walter), the Stoetzls (Ralph and Rolline), and the Preys.
- The original written partnership agreement vested management in the three husbands, who each received a salary.
- In 1957, the Stoetzls and the Betters bought out the Preys' interest; Walter Betters and Ralph Stoetzl continued to co-manage the business and draw salaries.
- On November 21, 1959, Walter Betters died, leaving his interest to his wife, Anna Busick (formerly Betters).
- Following Walter Betters' death, Ralph Stoetzl assumed full management of the partnership affairs, and Busick acquiesced to this arrangement.
- Stoetzl continued to draw a salary, starting at $11,004 per year, which was a point of contention.
- For several years after her husband's death, Busick received annual profit and loss statements and partnership tax returns which clearly reflected Stoetzl's salary.
- During this period, Busick did not object to Stoetzl receiving the $11,004 salary, although she later objected to subsequent increases.
Procedural Posture:
- Anna Busick sued Ralph Stoetzl in a California trial court for a partnership dissolution and accounting.
- The trial court entered an interlocutory judgment finding that an implied agreement existed for Stoetzl to receive a salary of $11,004 per year.
- The trial court also found that Busick had not agreed to any salary increases above $11,004 and ordered Stoetzl to reimburse the partnership for the excess amounts he had received.
- Busick (plaintiff-appellant) appealed the judgment to the California Court of Appeal, challenging the finding that Stoetzl was entitled to any salary.
- Stoetzl (defendant-appellee) did not appeal the order requiring him to reimburse the salary increases.
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Issue:
Can an agreement to pay a salary to a partner for managing the partnership business be implied from the circumstances and the conduct of the partners, despite the general statutory rule that partners are not entitled to remuneration for their services?
Opinions:
Majority - Stone, J.
Yes, an agreement to pay a managing partner a salary can be implied from the circumstances and conduct of the partners. While Corporations Code section 15018(f) establishes the default rule that partners are not entitled to remuneration, it explicitly allows this rule to be modified by an agreement between the partners. The court held that such an agreement need not be express; it can be implied when fairness and the principles of estoppel demand it. Here, Busick was a non-active partner who knew her husband and Stoetzl had drawn salaries. After her husband's death, she acquiesced to Stoetzl's sole management, received financial documents detailing his salary for years, and failed to object. This conduct, coupled with the fact that the business prospered under Stoetzl's management, created an implied agreement for him to be compensated for his services at the original salary level.
Analysis:
This case solidifies the principle that the default rules of partnership law, such as the prohibition on partner salaries, are not absolute and can be altered by the partners' conduct. It establishes that acquiescence—the act of knowingly accepting a situation without protest—can form an implied agreement that is as enforceable as a written one. For future cases, this decision empowers courts to look beyond formal agreements to the actual behavior and course of dealing between partners to find an equitable outcome. It serves as a caution to partners that they must promptly object to actions they disagree with, as their silence may be construed as consent.
