Opinion ID: 1726225
Heading Depth: 2
Heading Rank: 2

Heading: Allocations of expense items.

Text: The report of the special master made allocations of certain expenses as to joint venture, to Randolph, or to Schrecks, based upon the data available to him. Schrecks take issue with several of them. They first complain that one-half of the $36,678.72 interest paid by the venture should not be charged to them in the master's report. They claim the joint venture agreement is ambiguous as to all interest; that it should be construed strictly against Randolph under the same reasoning urged by them as to interest on excess capital contributions discussed above. However, the contract was not ambiguous as to this interest; it was an expense of the venture for operation of it. Whether the operating money was supplied by Randolph, or by the bank, it was contemplated that interest was to be paid by the venture. The agreement provided Randolph would provide the money or the credit; it did not require him to furnish it interest-free. It is not shown in the record, nor is it material, whether the money was furnished by Randolph directly or by securing bank loans; the agreement provided for interest in either event at the current bank rate. This interest was properly paid as a joint venture expense. Schrecks complain that depreciation on joint venture equipment must be considered, and that failure to do so resulted in reduced joint venture equity for them. Depreciation was in effect considered by the special master, however, because he took the actual sale value of the depreciable assets at the time of termination to determine its value for accounting purposes. He stated that this, in effect, did take into consideration the actual depreciation in value of the assets. To include a separate item for depreciation would be duplication, and none should be included in this accounting. An issue has been raised concerning items treated in the master's report as chargeable to Schrecks, and which they maintain should be capitalized or charged to Randolph personally. Included was $13,730.46 for hired labor and $1318.12 for payroll taxes. They complain that the labor was largely for construction of improvements on the land, which remained in the ownership of Randolph under the agreement, and which should be charged to him. Whether the labor was for repairs or capital improvements, however, appears to make little different here. If it was for repairs, it was a joint venture expense under this provision of the agreement: All other expenses of repairs and maintenance of buildings, machinery and equipment shall be paid equally by first party and second parties as a venture expense. If they were capital improvements, this provision appears to control: Additional Improvements and Equipment: First party agrees to extend the shed roof 20 feet on the south farm at his expense. Any additional equipment or installations shall be a venture expense. The agreement also requires that Schrecks will furnish all necessary labor to properly and effectively conduct the same at their expense. (Emphasis added.) Schrecks complain that this is unfair because Randolph will keep the improvements as part of his real estate after termination of the joint venture. We do not determine the wisdom or fairness of this agreement, however. Schrecks have made no claim of unconscionability, and it must be borne in mind that most of the improvements, such as a concrete feeding apron, reduced the amount of labor required, which would be a benefit to Schrecks. Randolph advanced money to cover margin losses of the venture. He had been reimbursed in part, but $4333.25 remained unpaid. Schrecks contend the venture should not reimburse these losses because such dealing was not provided for in the agreement. The special master testified, however, that this was a cattle hedging operation, and that a traditional hedge moves in tandem with the live market. Any margin loss would be offset by increased value of the live cattle on hand. He testified hedging was good business and a justified expense for the venture. We conclude the margin losses paid for by Randolph should be reimbursed in this accounting. Schrecks claim they should be paid for their labor performed outside the agreement. They contend that they should be given credit for 2321 hours at $3.00 per hour. In addition, they testified that $3144 in hired labor and employment taxes on it were paid by them. These items of labor were for construction of capital improvements, which would be venture expenses, as discussed previously, rather than part of Schrecks' duty to furnish labor for the regular farming operation. Because it is a venture expense, Schrecks should be reimbursed by the venture for the full amount of $10,107. This is an indebtedness of the venture to Schrecks.