## Facts

- In 1995, Farhad Shamloo and Rick Ladd formed an informal partnership called “Ginnytex,” a business engaged in manufacturing.
- The partners never executed a written partnership agreement and had no specific oral agreement governing compensation, capital accounts, or interest on internal advances.
- Ladd contributed $75,000 to Ginnytex as a capital investment.
- Ladd later provided an additional $75,000 to the firm, treated as a loan/advance to the partnership beyond his initial capital contribution.
- Shamloo contributed only his labor and industry know-how to the partnership.
- There was no agreement that Shamloo would receive a salary or other compensation for his work for the partnership.
- There was also no agreement that Shamloo’s services would be treated as a “capital” contribution that would be repaid to him upon dissolution.
- In November 1999, Shamloo sued Ladd seeking dissolution of the partnership and an accounting, asserting (among other things) that his labor and know-how should be treated as capital to be repaid upon dissolution.
- After a bench trial, the trial court awarded Shamloo $27,344 as compensation for his services to the partnership.
- The trial court also declined to award Ladd interest on the $75,000 he advanced to the firm.
- Ladd appealed, challenging both the award to Shamloo for services and the denial of interest on Ladd’s advance.

## Issues

1. Whether, absent an agreement, a partner who contributes only services may recover separate compensation for those services (or have the value of those services treated as repaid capital) upon dissolution and accounting.
2. Whether, absent an agreement, a partner who advances money to the partnership beyond agreed capital is entitled to interest on that advance.

## Decision

- The appellate court reversed the portion of the judgment awarding Shamloo $27,344 for services because, without an agreement, a partner is not entitled to separate compensation for work performed for the partnership.
- The appellate court reversed the denial of interest on Ladd’s $75,000 advance because, under default partnership rules, an advance beyond agreed capital is repayable with interest.
- The case was remanded for further proceedings consistent with these rulings, including recalculation of the accounting to remove Shamloo’s service-compensation award and to include interest owed on Ladd’s advance.

## Legal Principles

- Absent an agreement, partners are not entitled to compensation for services rendered to the partnership in conducting partnership business (apart from limited compensation related to winding up, where applicable).
- A partner’s labor and industry know-how are not treated as “capital” repayable upon dissolution unless the partners agree to characterize and account for them that way.
- Under default partnership rules, a partner who makes an advance of money to the partnership beyond the partner’s agreed capital contribution is treated as a creditor as to that advance and is entitled to repayment with interest from the date of the advance (unless the partners agree otherwise).
- In a dissolution and accounting, courts apply these default rules when the partners did not contract around them.

## Conclusion

Because the partners had no agreement providing for pay to Shamloo or treating his services as repayable capital, the service-compensation award could not stand; however, because partnership default rules treat Ladd’s additional $75,000 as an advance beyond capital, Ladd was entitled to interest on that advance, requiring reversal and remand for a revised accounting.


Shamloo v. Ladd, 2003 WL 68054 (2003)