# FILED
December 4, 1998 Cecil Crowson, Jr. Appellate C ourt Clerk IN THE COURT OF A

PPEALS OF TENN ESSEE AT JA CKSON STEVE MAKRIS, ) ) Plaintiff/Appellant, ) Shelby Chancery No. 106635-1 R.D. ) VS. ) Appeal No . 02A01-9712-CH- 00318 ) BOB KAPOS, ) ) Defendant/Appellee. )
APPEAL FROM

THE CHANCE RY COURT O F SHELBY COUNTY AT MEMPHIS, TENNESSEE THE HONORABLE NEAL SMALL, C HANCELLOR

JAMES A. JOHNSON, JR. HANOVER, WALSH, JALENAK & BLAIR, PLLC Memphis, Tennessee Attorney for Appellant
LEO BEARMAN, JR. BAKER, DONELSON, BEARMA N & CALDWELL, P.C. Memphis, Tennessee Attorney for Appellee

REVERSED AND

REMANDED

ALAN E. HIGHERS, J.

CONCUR: W. FRANK CR

AWFORD, P.J., W.S . DAVID R. FA

RMER, J. Steve Makris appeals the trial court’s denial of his claim for accrued and unpaid2

salariesin this p art nership accounting and dis solution case. For the r easons stated hereafter, we reverse the trial court’s judg ment.

Facts and Procedural His tory

In 1987, Steve Makris (Makris), Bob Kapos (Kapos), Demitris Vavouris (Vavouris), and Michael Sargent (Sar gent) entered into a partnership named “the Almadur a Group.” Th e two p artners who are parti es to this case, Makris and Kapos, also had been, and remain, partners i n numerous oth er business enterprise

s. Th e fourpartners in the Almadura Group entered into a written partners hi p agreement that established each partner’s interest as being equal an d provided, among other things, “No partner shall receive any salary for serv ices rendered to

the Partnership except as otherwise approved by a majority of the Partners.”

The partnership purchased and r enovated a 52-unit apartment complex known as the Almadura Apartments. Construc tion and renovationto the property began in Au gust, 1987, and was substantially completed by the

end of November, 1988. At the begi nning of this period of construction,the partnership orally agreed to hire Sargent to overseethe construction and to pay him a sal ary of $500 per week. During the period of Sargent’s du ties, Makris participated i n the oversight of Sarg ent’s work and also maint ained th e partnership’s checkbook and records.
Sargent’s oversight over the construction and his ac companying $500 per week salarylasted only two and one-half months , h owever, because the other three partners became diss atisfied with Sargent’s ser vices and performance. Ev entually, in 1988, Sargent’s one-fourth interest in the par tnership was “bought out” by the other three partners. Though the money that was used to buy out Sargent’s interest or iginally came from Kapos, the transaction, like all other subsequent monetary contributions from any of the remaining three

partners, actually created a partnership debt ow ed to Kapos, and the remaining three partners’ interests remained equal.3

A t som e point after Sargent’s ov ersight over the cons

truction was ended, the partnership orally agreed for M akris and Kap os jointly to assume those duties for which Sargent had been responsible. Also, the partnership orally agreed that both Makris and Kapos would “dra w” a salary of $350 per week. During the period of construction wherein Makris and Kapos took over Sarg ent’s former duties, Mak ris gen erally worked betw een approximately 70 and 80 hours per week. The joint res ponsibility during the construction phase lasted from October, 1987 until construction was near completio n. Ac cording to Kapos, during mid-October 1988, when construction was neari n g completion, Kapos instructed Makris to take the enti re amount that was being dr awn for salaries ($700) through the end of the year because Kapos was going to be out-of-town for a while. Kapos further claims that, after the 1987-88 salaries accrued, both Makri s a nd Kapos stopped earning these salaries.

After the renovation andconstruction ended by the en d of November 1988, Makris continued to manage business affairs at the Almadu ra Apartments, though the w ork that Makris performed after renovation w as general ly diffe rent in nature because it in volved
more day to day operations an d maintenance of the apartments. Makr is conti nu ed managing day-to-day

affairs of the apartment complex until November of 1993. According to Makris, during the e ntire period of time in whi ch Makris managed busines s affairs at the Almadura Apartments, h is average time spent working for the partnership never fell below 40 hours per week. How ever, during 1992 and 1993, his managerial invol vement at the apartments changed because he hir ed a resident manager during those years.

On Mar ch 27, 1989, interest payments were made by the partner ship to e ac h partn e r, though the partnership lacked sufficient funds to repay any additional amounts that the partners had contributed or loaned to the par tnership. By agreement,the interest that
was paid to each partner was at the rate of ten percent and was based upon a combination of any amounts that

the partner had loaned to the partnership and any other amounts that the partnership owed to that partner. Vavouris’s interest payment was based solely upon amounts that Vavouris had contri buted or loaned to th e partnership, while M akris’s and4

Kapos’s interest pa

yments we re based upon amo unts c ontributed or loaned to the partnership pl us

unpaid salaries that had accrued through the end of 19 88. Makris’s unpaid accrued salary w as accounted for as being $26,750, which represented 65 weeks (August 1987 through the beginning of November 1988) at $350 per week and 8 weeks (November

and December 1988) at $500 per week. Kapos’s unpaid accrued salary was accounted for as being $18,200, which represe nted 5 2 weeks (October 19 87 through October 1988) at $350 per week. No dispute exists reg arding these amounts. It is further undisputed that, after t hese first i nterest pay me nts were m ade, ten percent interest continued to accrue on any amount s owed by the partners hip to each partner.

Also in March 1989, Vavouris commenced a lawsuit against Makris, Kapos , and the partnership. In May

1989, at Kapos’s request, M akris drafted a letter that was addressed to and sent to Vavouris. This letter stated, in part: Partner Steve Makris continu es to ... fill the slot of Resident Manager and is at the property daily during business hours as well as weekends and on call 24 hours a day.

. . . . [I]n view of the

totally disproporti onate contribution of time to the partnership bythe partners, it seems reas onable that the following c ompensat i on be approved Steve Makris $500.00 per week Bob Kapos $ 10.00 per hour Though the letter contemplates a “pr oposal” for

compensation toMakris and Kapos, Makris explain e d at trial that the only change that Kapos sought v ia the letter was to add the $10.00 per hour agreement for Kapos’s benefit. At trial, Makri s explained that Mak ris’s $500.00 per week salary w as already agreed upon and in effect at the time of the letter to Vavouris. According to Makri s, he expressedto Kapos that he preferred not to put his own salaryfigure in the letter becaus e he viewed that issue as already be ing settled, but that Kapos instructed Makris to put it in the letter any

way. In fact, at

trial, Makris testified that he and Kapos had discussedhis services at the apartments and his entitlement to a salary
on several occasions, both before and after the M ay 1989 letter. Further, he testified that he and Kapos had agreed both prior to and after the Ma y 1989 letter that he w ould be entitled to $500 per week salary for his services. In fact, according to Mak ris, a meeting5

t hat was referred to and contempla ted by the May 1989 lette r was held after the letter , though Vavouris did not appear, a nd Makris a nd Kapos, cons tituting a quorum, reaffirmed Makris’s $500 per w

eek salary.

At trial, Kapos similarly testified that a partnership agreement ( a majority agreement
as between the three partners ) for Makris to receiv

e a $500 per week salary was reached
as of May 27, 1989. Kapos contends, however, that he a l so reached a separate agreementwith Makris at the same t ime, wher eby Makris would continue managing the Almadura apartm e nts and would receiv e only $500 per month for salar y so that the unprofitable business could “survive.”
Beginning in June 1989, Makris, w ho generally handled the partnership books and checkbook, drew $500 per month for compensation for his services. As mentione d, Makris claims that he was act ua lly accruing $500 per week in salary, but that he was only paid $500 per month because the partnership was not profita ble and could not afford to pay him $500 per

week and because he needed the $500 per month to offset some of his own expenses.
During the course of the Vavouris litigation, Makris asserted a claim for u npai d accrued salaries based upon a rate of $500 per week. Based on Kapos’s o wn testimo ny, he did not object to Makris’s claim for $500 pe r week a ccrued salaries in the Vavouris litigation. In f act, in the Vavouris l itigation, Kapos testified that Makris had been earning $500 per week in salari es and that such amount was fair

.
During the course of and in the defense of th e Vavouris litigation, at Kapos’s request, Makris preparedtwo handwritten spr eadsheets detailing all amounts ow ed by the partnership to each pa rtner. Th e first sp readshe et wa s dated Ju ne 30, 1989 and the second spreadsheet was prepared for the end of 1989. Though the June 1989 spreadsheet

was not introduced at trial, the Dec ember 1989 spreadsheet, which was introduced, included a specific entry for unpaid accrued salaries for Makris at $500 per1. The amount of “unpaid sal ary” for 1989 that was l isted on t he spread sheet w as $21 ,000, wh ich repre sents $500 p er week minus the $500 per m onth that M akris alre ady rece ived. 6 week. 1 The spreadsheet also reflected accrued inter est at the rate of ten percent for the 1989 unpaid accrued salaries. Makr is further claims that he provided a copy of this spreadsheet

to Kapos, discussedthe s preadsheet with him, and that Kapos raised no objectionsto Makris’s entries for unpaid accrued salaries and interest thereon. Kapo s, however, claims that

this spreadsheet was not provided to him.

The Vavouris litigation was settled in Aug ust 1993, atwhich point Vavouris was paid forthe transfer and/or termination of his partnership interest.After the transfer and/or termination of Vavouris’s interest in the p artnership, Makris and Kapos remained equal partners, though they were now “50/50" partners. Sho rtly after Vavouris’s interes

t in the partnership ended, Makris and Kapos agai n discussed financial mat ters, including the issue of s alaries. In November 199 3, Kapos requested, and Makr is provided, updated calculations

of amounts owed by the partner ship to both Makris and Ka pos. Li ke the earlier spreadsheet from December 1989, th ese calculations accounted for unpaid accrued salariesfor Makri s based on a $500 per week r ate and accrued interest based o n a ten percentper annu m rate. T wo or three days later, Kapos requested Makris to discontinue his management duties. Accordingly, Makris ended his managerial serv ices. Also, the resident manager left. Thereafter, Kapos attempted to pe rsonally manage the apartments. After two months, however, Makris notified Kapos that he did not agree to have Kapos continue managing the business. Ther efore, a private management company was hired to manage the apartments.

On November

5 and 6, 1997, the case was tr ied without a jury.Though other issues were presented in the tr ial court below that

are not before this Court on appea l, the case primarilyconcer

ned Makr

is’s cl aim fo r accrued and unpaid salaries for his services from January 1, 1989 t hrough No vember 30 , 1993, b ased upo n a $500 p er week sala ry. A s mentioned earlier, it was und isputed that any am ounts owed b y the partnership to each partner accrued interest at

the rate of ten percent, andthat there had been no discussi ons oragreements to alter this accrual of interest. At tr ial, Makris explai ned that, once h e2. Notes and other e vidences of i ndebtedness recei ved in pay ment for servi ces are incl udable in g ross income for indi

vidual f ederal i ncome tax purposes. Treas. Reg. § 1.61-2(d)(4). Makris reported the earl ier $26,750 that was earnedfrom Au gust 1987 t hroug h December 1988 a s taxable

inco me. He did not, however, report an y subseq uent am ounts o f unpaid a ccrued incom e (as a n ote payab le) as taxa ble incom e. 3. Interest ingly , both t he December 1991 and the December 1996 balance sheet s also fai led to account for unp aid accrued interest on amounts owed to the partners. As mentioned earl ier, howev er, such in terest on any am ounts o wed to p artners u ndispute dly accrue d at a rate o f ten perc ent per a nnum . 7 began accruing $500 per wee k in November and Decembe r1988, there were no subsequent

agreements to change that ar rangement and that he con tinued accruing salary at $500 per week

until November 1993. Mor eover, Makris testi

fied that there were many discussions

affirming his $500

per week salary a rrangement. Makris further explained at trial that he had been drawin g o nly $500 per month because the bus iness had not been earning enough money to pay any additional amounts for sal ary.
At trial, a December 31, 1991 partnership balance sheet w as also introducedthat set forth, among other things, “notes payable” owed by the partnership to

each partner and creditor. The amou nt listed as payable to Steve Makris reflected a total amount that included the earlier $26,750 of unpaid accrued salary from Aug ust 1987 through December 1988 and other amou nts that Mak ris had cont ributed that

the partner

ship owed t

o him. The amount listed as payable to Steve Makris did not

reflect any unpaid salary accrued after December 1988. Makris explained, however, that no additional amounts for his cl aimed unpaid accrued salary w ent on the books of the partnership because of the pending Vavouris litigation (Vavouris was contesting Makris’s claim for unp aid accrued salaries) a nd because he did not want to pay ta xes on amounts that he did not ac tually receive and mightnot ultimately receiv e, 2 consider ing the partn ership’s unprofi table his tory. Accordin gly, Makr i s did not pay any individual federal income tax on any unpaid salary accrued from 1989 through Nov ember 1993.
Similarly, a December 31, 1996 partnership balance sheet, which was prepared by the partnersh ip’s accountant, was i ntroduced at trial that li kewise did not reflect any amounts for unpaid salary accrue d after December 1988. 3 At thatpoint, however, Kapos had been handling t he partnership “books” si nce the breakdown in rel ations in 1993. Furth ermore, the Vavouris litigation was still pendi ng and the partnership w as still not8

profitable.
After trial, th e trial court orde red the followin g: Plaintiff’s prayer for a declarator y judgment to the effec t tha t Plaintiff is entitled to place on t he partn ership books an account pay able reflecting salar y of $500 per week accruing from 1989 through 1993 is denied. Plaintiff’s claim for such salary and interest on that salary is therefore denied. After the trial court denied a subsequent moti on to reconsider and amend that wa s filed by Makris, Makris appealed. Though an outline of Makris’s arguments is set for th in his appellate briefin lieu of a proper statement of the issues pr esented for review, appel lant has raised and briefed the follow ing issue: Whether the A lmadura Group entered into an oral ag reement entitling Makri s to $500 per week as salary for his managerial services performed at the Almadura apartments after 1988.
Analysis

Generall y, under Tennessee’s Uniform Partner ship Act, “No partner i s entitled to remuneration for acting in the partners hip business.” Tenn. Code Ann. § 6 1-1-1 17(6) (Supp. 1998). This principle, howev er, is expressly

subject toany agreement between the partners of a partnership. Id. § 61-1-117. Accordingl y, in the instant case, M akris is not entitled to the salaries th at he is claiming unless such salaries were provided for pursuant to a partnership agreement.

As this Court previ ously rec ognized in Aussenberg v. Kramer, 944 S.W.2d 367 (Tenn. App. 1996), partnership ag reements can be either written or oral. 944 S.W.2d at 371. The Almadura Group’s orig inal written partner ship agreem ent established, “No partner shall receive any

salary for servi ces re ndered to the Partnership ex cept as otherwise approved by a majority of the Partners.”

Therefore, resolution of the case before th is Court centers upon whether any written or oral agreement, establishing Makris’s entitlementto a $500 per week salary after 1988, was reached by a majority of the partners at some point after the execution of the written partnership agreement. Our review of this issue is de novo

upon the record, accompanied by a presumption of correctness as to the9

trial court’s finding, unless the preponderance of the evidence is otherw ise. Tenn. R. App. P. 13(d)

Initiall y, we note that Makris c laims that he is entitled

to unpaid salaries dating back to Janua ry 1989. According t o Kapos’s testimony, how ever, the agreement for sal aries that was made during the partnership’s construction phase (during 1987 and 1988)entitled Makris to receive salaries only through the end of Dece mber, 1988, and that no agreement provided forhis continued receipt of salar ies immediately following the construction phase. We find that the preponderance of the evidence does not weigh against the trial court’s refusal to award Makris with unpaid salaries dating back to January 1989. To the ex tent that Makris’s claim for unpai d salaries pertained to the period f rom Jan uary 1, 1989 through May

27, 1989, the trial court’s determination hinged upon the credibility and w

eight of the oral testimony from both M akris and Kapos, and, accordin gly, we afford considerable deference to the tr

ial cou rt’s fi n ding. See Humphrey v. David Witherspoon, Inc. , 734 S.W.2d 315, 315 (Te nn. 1987).
Upon careful review

of the entire record in this case, however, including all of Kapos’s testimony, we find that the preponderance of the evidence weighs against the trial court’s complet e denial of Makris’s claim for unpaid salaries. As we ex

plained above, Kapos testified at trial that a par tnership agreement (a major ity agreement as betw

een the three partners) for Makris to earn a $500 per week sal ary was reached as of May 27, 1989. This testimony from Kapos supports Makris’s testimony and claim for unpaid salaries.
Kapos further testified that he reached a separate agreement with Makr

is at the
same time, whereby

Makris would continue managing the Almadura apartments and would receive only $500 per month for salar y so that the unprofitable busi ness could “surviv e.” Such an agreement is not necessar ily inconsistent w

ith the partnership agree ment, because Makris cou ld earn $5 00 per we ek, while drawing only $500 per month (thereby accruing unpaid amounts). Kapos, howev er, contends that the separate $500 per month agreementsomehow limited the total a mount that Makris was ac tually earning. In addition4. The resident manager received $75 per week salary pl us an apartment, va lued at $400 p er month. 10 to Kapos’s testimony in the instant case pertaining t o the existence of a $ 500 per w eek agreement, Kapos testified in the prior Vavouris l itigation that Makri s had been earning $500 per week in salaries and that such amount was fair. The Tennessee Supreme Court has recognized, “Contradictory statements of a witness in connection with the same fact have a result of cancelling out each other.” Tibbals Flo oring Co. v. Stanfill , 410 S.W.2d 892, 896 (Tenn. 1967); State v. Jones , 598 S.W.2d 209, 213 (Tenn. 1980). See also 29A Am. Jur. 2d, Evidence § 1444 (1994) (“where a party witho ut reasonable explanation testifies to facts materially different c oncerning a vita l issue . . . , that evidence is discredited as a matter of law and should be disregarded”). Acc

ordingly, even as

suming portions of Kapos’s testimony wer e construed as a complete denial of Makris’s entitlement to accrued salaries at the r ate of $500 per week, Kapos’s own testimony expressly contradicted any such complete denials, thereby “cancelling out” these denials. Therefore, the p repon derance of the evidence establi shes that Makris earned $500 per week as salary, though considering Kapos’s testimony, Makris did not begin earn ing suc h salary until May 27, 1989.

However, even though Makris asserts that he should be entitled to $500 per week salarythrough November 1993, w e do not concur. Though the May 1989 letter does not, standing alone, represent the $500 per w eek agreement, we f ind the let ter to include credible proof co ncerning the term s of the $ 500 per wee k salary a greement. More specifi cally, we note that the letter justifies Makris’s $500 per w

eek salary by the fact that Makri s “fill[ed ] the slot of Resident Manager,” in addition to performing other managerial services. Accordingly, w e find that Makris’s ri ght to receive $500 per week as

salary was conditioned upo n his fulfillment of, among other things,those duties and responsibil ities that woul d have been required o f and pe rformed by a reside nt manag er. Makris’ s own t estimony

established that he hired a r esident manager during 1992 and 19 93. Thoug h this resident manager was paid considerably less than $500 per week, 4 the resident manager’s salary and “rent-free” apartment were provi ded at partn er ship expense. Therefore, we find that Makris i s not entitled to $500 per week salary for the period dur ing5. As further support of for our c onc lusion , we n ote th at Ka pos ’s tes timo ny fro m th e Va vour is law suit, w here in

Kapos stated that Mak ris had be en earn ing $500 per wee k salary, wa s given a t a time prior to the employ ment of a resident

manager. We also note that, even though Makris cl early continued p rovi ding managerial services after

the em ployme nt of a res ident m anage r, h e also cont inued rece iving $ 500 per m onth for his services. Last, we note that Kapos also provi ded managerial and maintenance services, though to a l esser degree, throughout m ost of the period in question (from January 1989 through Novem ber 1993). 11 which a resident manager was empl oyed to provide services that Makris had previously been providing. 5 Accordin gly, we find that Makris i s entitled to $500 per week salary for

the period running from May 27, 1989 through December 31, 1991 , minus the $500 per month that he p reviously “d rew” for sa lary.

Conclusion

Based upon the foregoing, the trial court’s denial of Plaintiff ’s prayer for a declaratory judgment to theeffect that Plaintiff is entitled to place on the partnership bo oks an account payable reflecting salary o f $500 per week accruing from 1989 through 1993 is hereby reversed, the trial court’s denial of an award of such salary and interest on that

salaryis hereby revers ed, and this cause is hereby remanded to the trial court for such further proceedings as may be necessary i n accordance withthe foregoing. Costs of this appeal a re taxed to Kapos, f or which exe cution m ay issue if necessar y.

HIGHERS, J.

CONCUR:

CRAWFORD, P.J., W.S.12

FARMER, J.