Opinion ID: 1911789
Heading Depth: 1
Heading Rank: 26

Heading: The Partnership Agreement Precludes Accrued Interest

Text: Harley next contends that he was entitled to have the court consider the distributions he received as accrued interest on the value of his partnership interest. The district court reasoned, in part, that Harley was not entitled to interest because the partnership agreement precluded the payment of interest. Section 13 provides: The value of the partner's interest as determined in [section 12] shall be paid without interest to the withdrawing or retiring partner . . . But Harley counters that [t]he Partnership Agreement is silent as to what should happen if the buyout is not completed within ninety days. [40] He argues that § 67-434(2) therefore operates as a gap filler and requires interest to be paid from the date of his dissociation to the date the partnership pays the buyout price. Harley's argument overlooks the obvious fact that the partnership agreement is not silent on the payment of interest. Section 13 specifically precludes interest. Comment 3 of RUPA's counterpart to § 67-434 provides in part: The Section 701 rules are merely default rules. The partners may, in the partnership agreement, fix the method or formula for determining the buyout price and all of the other terms and conditions of the buyout right. Indeed, the very right to a buyout itself may be modified, although a provision providing for a complete forfeiture would probably not be enforceable. [41] In his reply brief, Harley argues that the purpose of requiring a partnership to pay interest is to compensate dissociated partners for the use of their capital. He claims that requiring interest eliminates the partnership's incentive to delay paying the buyout price. Comment 3 to § 701 of RUPA supports Harley's contention that the partnership must pay interest . . . to compensate the dissociating partner for the use of his interest in the firm. [42] And we recognize that equity principles apply in partnership disputes unless displaced by the 1998 UPA. [43] Yet enforcing section 13 does not cause a forfeiture of Harley's partnership interest. Nor can we conclude that the partnership has unfairly benefited from the use of Harley's capital interest when Harley was largely responsible for delays in the appraisal process. Moreover, the court gave Harley the benefit of profit distributions through December 2002 that he was not statutorily entitled to receive. We conclude that the partnership agreement controls and that Harley was not entitled to accrued interest on the value of, his partnership interest because the partnership agreement precluded interest. Because Harley was not entitled to profit distributions or accrued interest, the district court did not err in applying the partnership's distributions after January 1, 2003, to the purchase price of Harley's interest.