## Facts

- Stephen M. Kovacik, a licensed San Francisco building contractor, proposed that Henry E. Reed work as job superintendent and estimator on kitchen remodeling jobs.
- Kovacik agreed to supply financing (including use of his business credit) and to split profits equally with Reed.
- Reed’s contribution consisted solely of his labor; he received no salary for his work on the jobs.
- The parties did not discuss or agree on sharing losses, and Reed never promised to pay any part of monetary losses.
- The venture obtained multiple remodeling jobs; Reed supervised the jobs.
- Kovacik later asserted the venture was unprofitable and demanded that Reed contribute money toward amounts Kovacik claimed to have advanced beyond venture income.
- Reed consistently refused to pay any part of the venture’s monetary losses.

## Issues

1. In a joint venture with equal profit sharing but no express loss-sharing term, where one party contributes only capital and the other only labor, is the labor-only venturer liable to contribute money toward operating losses?

## Decision

- The California Supreme Court reversed the judgment requiring Reed to pay one-half of the venture’s monetary losses.
- The court treated the arrangement as a joint venture and applied general partnership principles.
- The court held that, absent a contrary agreement, a venturer who contributes only services is not required to contribute money to cover operating losses when the other venturer contributed the capital.

## Legal Principles

- Joint ventures are generally governed by partnership rules concerning the rights and liabilities of participants.
- Although profit-sharing often implies loss-sharing, that implication is not absolute and depends on the parties’ arrangement and contributions.
- When one participant contributes only capital and the other contributes only labor, and the agreement is silent on losses, the capital contributor bears monetary losses and the labor contributor bears the loss of uncompensated services.
- Requiring the labor-only venturer to pay monetary losses would impose a double burden (loss of time plus an out-of-pocket payment) that is not ordinarily implied without an express agreement.

## Conclusion

The court held that a labor-only participant in a profit-sharing joint venture is not liable for monetary losses where the agreement does not expressly allocate losses; each party bears the loss inherent in the form of contribution made—capital for the financier and uncompensated labor for the service provider.


Kovacik v. Reed, 49 Cal. 2d 166, 315 P.2d 314 (Cal. 1957)