Opinion ID: 2616451
Heading Depth: 1
Heading Rank: 3

Heading: Interest Charged MPI by GP

Text: The parties had, of course, understood from the outset that GP would make some cash advances to the joint venture. Although the interest rate to be charged on these advances was never the subject of an express written agreement, there was ample evidence of an understanding that the charge would be from 1/4 per cent to 1/2 per cent over the Bank of America's prime rate. Until December of 1974, GP carried the interest owed by MPI on its book at the rate of 1/4 per cent over the prime rate. On December 19 Mr. Kane directed GP's accounting department that MPI was to be charged interest at 2 per cent above the prime rate, that interest was to be compounded monthly, and that both of these charges were to be made retroactive to July 10, 1974, the date of GP's first cash advance to MPI. These changes had not been discussed in advance with the Montana group or at the December 17 board meeting. When he learned of these changes Wayne Knutson, a member of the Montana group and MPI's treasurer, protested, but GP has continued to charge MPI interest on all advances at 2 per cent over the Bank of America prime rate, compounded monthly. At the time of trial no payments on principal or interest had been made. The evidence was conflicting as to whether payment of this rate of interest would result in a profit to GP. Mr. Kane testified at length about the cost of GP's own financing, and the trial court found that there was no profit to GP. We will accept this finding for purposes of this opinion, although there was persuasive testimony to the contrary. It is true, as the trial court observed, that GP had not promised to finance MPI indefinitely at a loss to itself. However, GP was not justified in ignoring its original agreement to provide financing at 1/4 or 1/2 per cent above prime and in unilaterally imposing a higher interest charge retroactively on all advances. Nor was it entitled to compound the interest in the absence of any agreement to that effect. We consider the fact that the original interest rate on GP's books was 1/4 per cent above prime to be convincing evidence that this was GP's understanding of the original agreement. We hold that GP is entitled only to simple interest at that rate on all advances to MPI until the time that the Montana group acquiesced in the higher interest charges. On remand, the trial court will have to determine the appropriate date. [6]