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Law School Case Brief

Smith v. Kelley - 465 S.W.2d 39 (Ky. 1971)

Rule:

A partnership is a contractual relationship and the intention to create it is necessary.

Facts:

Ira Smith worked for certain partners, Kelley, Galloway, and others, and received a salary plus travel expenses. At the end of each year, Smith was paid a relatively small additional sum as a bonus out of the profits of the business. After Smith discontinued his employment with the partners, he claimed that he was entitled to a fixed percentage of the profits, and commenced action for an accounting. The trial court held that no partnership existed and dismissed the claim. 

Issue:

Was there a partnership relation created as to entitle Smith to share in the partnership profits?

Answer:

No.

Conclusion:

On appeal, the appellate court affirmed, finding that the conduct of the parties over a three-and-one-half-year period confirmed the conclusion that, though the employee was held out to the public as a partner, between themselves a partnership relationship was not intended to be and was not created. Additionally, there was no writing evidencing a partnership agreement.  A partnership is a contractual relationship and the intention to create it is necessary. The original partners had at no time agreed that Smith would be entitled to share in a percentage of the profits. This was a matter of credibility and the Chancellor, who heard the evidence, chose to believe partners. His finding on this point was not clearly erroneous and would seem to be dispositive of the case. In addition however, the conduct of the parties over a three-and-one-half-year period confirms the conclusion that, though Smith was held out to the public as a partner, between themselves a partnership relationship was not intended to be and was not created.

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