## Facts

- Carl A. Zajac operated a combination business in the Marche community in Pulaski County, Arkansas, including a garage-and-salvage operation; the dispute concerned only the salvage branch.
- The salvage work involved buying wrecked automobiles (often from insurance companies) and either rebuilding them for resale or dismantling them for parts.
- George Harris claimed that he and Zajac made an oral agreement to go into the salvage business together and split profits equally, with an additional term that Harris would receive one-fourth of the proceeds from any parts he personally sold.
- Harris borrowed about $9,000 from a bank, secured by his own property, and used the money to buy vehicles for the salvage operation.
- Over roughly two years, the men divided profits on salvage transactions equally, regardless of which man handled the particular purchase or sale.
- Zajac controlled the books and records and treated Harris’s share as employee compensation for tax purposes; Zajac did not file partnership income tax returns.
- Harris was illiterate and relied on Zajac to handle paperwork and accounting; the parties did not consult a lawyer or reduce their arrangement to writing.
- Harris sued in chancery to compel an accounting of profits and assets on the theory that the salvage operation was a partnership; Zajac denied any partnership and argued Harris was only a commission-based employee.
- The chancellor found a partnership existed and referred the matter to a master for an accounting; Zajac appealed.

## Issues

1. Whether the evidence supported the chancellor’s finding that Zajac and Harris operated the salvage business as a partnership (rather than an employer–employee relationship) so that an accounting was proper.

## Decision

- The Supreme Court of Arkansas affirmed.
- The court held the chancellor’s partnership finding was not against the weight (preponderance) of the evidence.
- The referral to a master for a partnership accounting therefore stood.

## Legal Principles

- Under the Uniform Partnership Act (Ark. Stat. Ann. § 65-107 (Repl. 1966)), the existence of a partnership is determined from the whole record using statutory indicators rather than formal labels.
- A partnership is a contractual relationship that can take many forms; when parties make no written agreement and show no intent to choose a specific legal form, the court looks to substance and conduct.
- Sharing profits is strong evidence of a partnership, though it is not automatically conclusive in every setting.
- Contribution of capital and exposure to financial loss (such as personally borrowing funds to buy business inventory) support a finding of partnership rather than commission employment.
- Bookkeeping practices and tax reporting choices are relevant evidence but are not controlling when they do not match how the parties actually operated and shared returns.
- On appeal from chancery, the appellate court reviews the record but will not overturn factual findings unless they are against the preponderance of the evidence.

## Conclusion

Because the evidence showed that Harris contributed substantial funds at personal financial risk and that the parties in practice split salvage profits as co-owners, the Arkansas Supreme Court upheld the chancellor’s determination that a partnership existed and affirmed the order for a partnership accounting, despite Zajac’s unilateral tax and bookkeeping treatment of Harris as an employee.


Zajac v. Harris, 231 Ark. 737, 410 S.W.2d 593 (1967)