Schymanski v. Conventz
674 P.2d 281, 1983 Alas. LEXIS 505 (1983)
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Rule of Law:
In the absence of an express or implied agreement between partners, a partner contributing only personal services to the partnership is not entitled to be compensated for those services as a capital contribution upon dissolution.
Facts:
- The Schymanski group and the Conventz group entered into an oral 50-50 partnership to build and operate a fishing lodge.
- The initial agreement required both groups to contribute equal cash, with Conventz supervising construction and the Schymanskis handling promotion.
- Later, Conventz drafted two documents which he contended modified the agreement to allow his architectural and managerial services to stand in lieu of further cash contributions.
- The Schymanskis claimed they were unaware of this modification, believing the documents were a mere formality for incorporation.
- Disagreements arose over construction delays, cost overruns, and Conventz's financial record-keeping.
- After learning partnership funds were kept in Conventz's personal bank account, the Schymanskis refused to contribute more funds without a full accounting.
- On September 2, 1980, Conventz sent a letter expressing his desire to terminate the partnership and notified creditors he would not be liable for future debts.
Procedural Posture:
- The Schymanskis filed a lawsuit against Conventz in the trial court seeking a partnership dissolution, an accounting, and damages for alleged wrongful conduct.
- Following a bench trial, the trial court ordered the dissolution of the partnership.
- The trial court found that Conventz had made a $70,000 non-cash capital contribution for his architectural and managerial services.
- The trial court ordered the sale of the lodge and a division of proceeds that credited Conventz for this $70,000 contribution.
- The Schymanskis, as appellants, appealed the trial court's judgment to this appellate court, challenging the finding regarding the non-cash contribution.
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Issue:
Under Alaska's Partnership Act, may a partner's personal services be treated as a non-cash capital contribution upon partnership dissolution in the absence of a specific finding that the partners had an express or implied agreement to do so?
Opinions:
Majority - Serdahely, Judge
No, a partner's personal services may not be treated as a capital contribution upon dissolution unless the court first finds that an express or implied agreement to that effect existed between the partners. The general rule, codified in Alaska's Partnership Act, is that no partner is entitled to remuneration for acting in the partnership business absent an agreement. While personal services can constitute a capital contribution, this requires a specific agreement, which distinguishes it from compensation for ordinary services that is paid out of profits. Here, the trial court valued Conventz's services at $70,000 and treated them as a capital contribution without making a specific finding that an agreement to do so existed. Because it is unclear whether the court found an express or implied agreement, this court cannot determine if the finding was clearly erroneous and must remand for a specific determination on this issue.
Analysis:
This decision reinforces the critical distinction between a partner's services contributed for a share of profits and services contributed as capital. It establishes that the default statutory rule prohibiting remuneration for a partner's services can only be overcome by a specific finding of an express or implied agreement to treat those services as capital. This holding requires trial courts to establish a clear evidentiary basis for such an agreement before valuing and crediting a partner's 'sweat equity' as a capital contribution in a dissolution. It places the burden on partners who provide services to ensure the partnership agreement clearly reflects their intent if they wish for those services to be treated as capital upon dissolution.
