Story Case

Lloyd Baker and Joseph Mack formed a partnership for conducting a bakery business, each agreeing to give all of his time to the firm. Baker was a skilled man in his trade, and was accustomed to receive $175 per month for his work. Mack was a clerk and salesman and had never received more than $100 per month. In the firm, each devoted himself to the work he was accustomed to doing. When the partnership was formed, nothing was said as to any salary to be received by either party, and at the end of the first month, Baker maintained that he should receive from the firm a salary greater than that which should be paid to Mack. The latter said that, since they were partners, if any amount was taken out in advance as salary, it should be on an equal basis. Who is right?

Ruling Court Case. Health Vs. Waters, Volume 40 Michigan Reports, Page 457

Elijah "Waters, now deceased, and his brother, Daniel, for many years had been engaged in business as partners. By the terms of their partnership agreement it was contemplated that each should give all of his time and attention to the management of the business. Nothing was said, however, in their contract, as to the right of either to compensation under any circumstances. During the last year of his life, Elijah had been sick and was unable to give any time to the conduct of the business. As a result of this, all the work of the partnership fell upon his brother, Daniel.

This bill was brought by Mrs. Health, wife and executrix of Elijah, demanding an accounting of the partnership affairs. One question arose, among others, concerning the right of Daniel to compensation for the extra work which he did during the sickness of his brother.

Decision

In the absence of any agreement to that effect, a partner has no right to compensation for his services; it is generally held that his only interest is the profits which he hopes to derive from the business. Mr. Chief Justice Campbell said in part: "So long as a partnership continues, the sickness or inability of a partner is one of the risks incidental to the business, and works no forfeiture or reduction. If Elijah Waters himself had chosen to pay Daniel for his services, it was outside of the articles, and would have been a mere gratuity. Daniel was bound at all events to use his best efforts and judgment in promoting the common enterprise, without further compensation than his share of the profits." It was, therefore, decided that, in the settlement of the affairs of the partnership, Daniel Waters was entitled to no compensation for the extra work which he did during the sickness of his copartner.

Ruling Law. Story Case Answer

Neither partner is entitled to any compensation for the services which he may render in the performance of the partnership affairs, even though the services of one partner are more valuable than those of the other; or even though one partner is kept away from the business because of ill health or for other reasons. It is said to be the implied understanding of the partners that they receive their compensation in the profits which they may derive from the business.

Of course, in a given case, the partners may agree among themselves that one or more of the partners shall have compensation for extra services, and to this agreement the courts will give effect, if otherwise binding. Also, the right to extra compensation may be implied from the course of dealings of the partners; as for example, the case in which two partners engage in business and one of them does all the work and the other is employed in some other concern at a salary. From such an arrangement, it might well be implied that the managing partner should be entitled to compensation.

In the Story Case, nothing was stipulated as to the salary each partner should receive and, since both gave their time to the firm, it could not be implied that one should receive more than the other. Therefore, Mack was right in saying that since they were partners, the proceeds of the firm should be divided equally.