Opinion ID: 2190354
Heading Depth: 1
Heading Rank: 4

Heading: interest on the loan to the partnership

Text: There is simply no question, based on the evidence in this record, but that the limited partners in the Essex Square venture lent additional monies to the partnership to cover pre-paid interest on the construction loan. While it is obvious that this loan was closely related to the partnership agreement itself, it was a separate and distinct transaction. The limited partners were not obligated under the partnership agreement to advance these additional monies to the partnership, but they voluntarily did so anyway. See, Article IV, § 2 and Article V, § 2 of that agreement (R. 684a, 686a). Hence, the parole evidence rule does not come into play with respect to this collateral or side agreement. It is clear that this was a loan and not a gift since the monies advanced were paid back to the limited partners. The rule in Pennsylvania for over one hundred years has been that money lent bears interest without any express agreement. Nicolazzo's Estate, 414 Pa. 186, 199 A.2d 455 (1964); Borough of Port Royal v. Graham, 84 Pa. 426 (1877). In other words, an agreement to pay back the loan with interest is presumed. While it has been argued that the consideration for this loan was solely the interest deductions for tax purposes realized by the lenders, and this was obviously a benefit realized by them, we think that it must still be presumed that the loan was to be repaid with interest as that term is ordinarily understood. Interest means interest. A written note or agreement to the contrary could easily have been entered into here if that is what the parties had intended. But how is interest to be calculated? In Nicolazzo's Estate, supra , this Court held that interest was to be determined by resort to § 3-118(d) of the Uniform Commercial Code. 199 A.2d at 456, fn. 1. § 3-118(d), in its present codification, set forth at 13 P.S. § 3118(4), provides, as did the former section, as follows: (4) Unless otherwise specified a provision for interest means interest at the judgment rate at the place of payment from the date of the instrument, or if it is undated, from the date of issue. Were we to decide this issue de novo, we would resort to the formula set out in § 3118(4). The trial court determined that the appropriate interest rate was the prime rate of eight (8%) percent, and this was based on competent written evidence in the record with respect to the comparable Green Hill-Lytle loan. We think, therefore, that there is sufficient evidence in the record to support this conclusion, and we will not disturb it. Hence, the allowance of the claim for interest due on these loans must be, and the same is hereby, affirmed.