Opinion ID: 1058004
Heading Depth: 2
Heading Rank: 1

Heading: interest on rogers' equity

Text: The Plaintiffs assert that the circuit court erred by awarding Rogers interest on his capital account balance when the account allegedly was overdrawn. Their assignment of error thus challenges the circuit court's interpretation of the interest obligation set forth in the partnership agreement. We review the interpretation of a contract de novo. Uniwest Constr., Inc. v. Amtech Elevator Servs., 280 Va. 428, 440, 699 S.E.2d 223, 229 (2010). When the terms in a contract are clear and unambiguous, the contract is construed according to its plain meaning. Words that the parties used are normally given their usual, ordinary, and popular meaning. No word or clause in the contract will be treated as meaningless if a reasonable meaning can be given to it, and there is a presumption that the parties have not used words needlessly. Id. (quoting PMA Capital Ins. Co. v. U.S. Airways, Inc., 271 Va. 352, 358, 626 S.E.2d 369, 372-73 (2006)). The Plaintiffs' argument on this assignment is founded on an interpretation that the interest payable by the Firm under Paragraph 3.5 of the partnership agreement accrues on the balance of each partner's respective total contributions to the Firm. The Plaintiffs contend that such contributions include deferred or uncollected salary, fees, and other earnings, which their forensic expert described at trial as capital contributions. [7] He testified that, [A] capital account balance is increased by capital contributed to the firm and increased by a share of income allocated to a partner, and it's decreased by distributions to a partner from the firm and losses allocated to a partner. While his statement may be correct as an accounting principle, it exposes a critical semantic divergence between a capital account as contemplated by the partnership agreement and each partner's capital in the Firm under standard accounting practices. Under Paragraph 3.1, each partner's capital account is defined as that amount he contributes to the capitalization of the firm. Under that paragraph, [t]he total capitalization of the Firm shall be determined by the Partners. Under Paragraph 3.2, the partners must contribute to the Firm's capitalization equally: Each Partner shall deposit to the account of the Firm an equal share of the capitalization of the Firm and the financial records of the Firm shall reflect the Capital Account of each Partner individually. (Emphasis added.) Under Paragraph 3.3, capital contributions are made only after a call for capital. Under Paragraph 3.4, a partner's failure to make his equal contribution within five days of such a call for capital suspends his participation in the management of the Firm and places his continued role as a partner in jeopardy. Based on these provisions it is clear that the phrase capital account as contemplated by Paragraph 3.5 includes only the partners' equal contributions to the capitalization of the Firm: their equity in the Firm as opposed to any undrawn surplus in the income accounts provided for in Paragraph 7.4. While it may be standard accounting practice to apply such undrawn surplusesin the form of salary, fees, and other earnings a partner may be entitled to receive but has not actually withdrawnto the partner's capital account, there is no provision in the partnership agreement directing that those undrawn surpluses be included in the equity on which the Firm is required to pay interest under Paragraph 3.5. The partnership agreement does not provide for voluntary, unilateral increases in a partner's equity. To the contrary, under Paragraphs 3.1 and 3.2 of the partnership agreement the total capitalization of the Firm must be determined by the partners collectively, and must remain equal among all of them; the agreement thus provides only for mandatory increases through calls for additional capitalization shared equally among the partners. There were no such calls for capital. Accordingly, though Rogers' capital or income accounts may or may not have been overdrawn according to standard accounting practices as the Plaintiffs allege, there was no reduction in his partner's equity as contemplated by the partnership agreement, just as there was no increase in the Plaintiffs' respective equity regardless of any undrawn surpluses in their capital or income accounts. The partners' equity remained an equal $150,000 at all times after the execution of the partnership agreement and concomitant agreement that each partner contribute $150,000 in capital. The interest to which each partner was entitled under Paragraph 3.5 thus accrued only on his initial $150,000 contribution notwithstanding any deposits or withdrawals from the income accounts provided for in Paragraph 7.4. We therefore will affirm the portion of the circuit court's judgment awarding Rogers interest on his $150,000 capital contribution.