Opinion ID: 1726225
Heading Depth: 2
Heading Rank: 1

Heading: Recovery of excess capital contributions and interest.

Text: Pursuant to the joint venture agreement, Randolph contributed $20,000 in operating capital, $59,375 in machinery and $120,480 in inventory, or a total of $199,855. Schrecks contributed $22,120 in machinery but no livestock or other inventory and no operating capital. No balancing payments for these contributions were made, nor was there any interim accounting between the parties. The joint venture agreement provided that Randolph would be repaid for his excess contributions of inventory. It stated that: Second parties agree to pay to first party $60,240.00 which is based on said inventory. Payment shall be made thereon on November 1, 1968, to first party by the execution of promissory notes secured by a security agreement on said property by second parties. This promissory note was never executed and the right of Randolph to recover the principal involved is apparently not seriously resisted by Schrecks. Randolph's advance of $20,000 in cash was made by him pursuant to this provision: He [Randolph] further agrees that on November 1, 1968, he will deposit to the account of Rolling Ridges Ranch the sum of $20,000 in the bank thereafter designated to be used in the conduct of this venture and that he will thereafter furnish funds or obtain the necessary credit to supply operating funds to said venture and carry out any operation that the parties may mutually agree upon. All bank notes shall be signed by all parties to this agreement. Interest at the current bank rate shall be charged. He has not been repaid this amount. Randolph's excess contribution of machinery is to be considered in light of this provision: Whichever party's machinery shall be appraised at the lower figure shall pay to the other party one-half of the difference between the said two appraisal valuations on January 1, 1969. The respective contributions of machinery were not appraised. However, it is undisputed that Randolph's contribution was $37,255 greater than Schrecks'. One of the issues on appeal is whether Randolph should collect interest on his excess capital contributions for inventory, machinery and cash. The agreement is not clear in this regard, but does say in part that no interest shall be charged [by Randolph] to the venture on money advanced by him or borrowed for said operation. Schrecks contend this provision controls, but that in any event, if the contract is ambiguous as to this matter such ambiguity must be resolved against the party drafting the agreement. They contend it was drawn by Randolph's attorney; Randolph and the attorney stated he acted for the joint venture not for either party. The trial court did not decide the issue of Randolph's right to recovery for his excess capital contributions and therefore did not decide whether interest was collectible on them. The agreement in relevant part provided: [Randolph] agrees that he will finance all operations of said venture up to November 1, 1968, and that no interest shall be charged to the venture on money advanced by him or borrowed for said operation. He further agrees that on November 1, 1968, he will deposit to the account of [the joint venture] the sum of $20,000.00 in the bank hereinafter designated to be used in the conduct of the venture and that he will thereafter furnish funds or obtain the necessary credit to supply operating funds to said venture and carry out any operation that the parties may mutually agree upon. All bank notes shall be signed by all parties to this agreement. Interest at the current bank rate shall be charged. (Emphasis added.) Schrecks contend the phrase no interest shall be charged controls. However, a fair reading of the agreement persuades us otherwise. This phrase follows a specific and limited agreement by Randolph to finance the operation up to November 1, 1968, and the agreement provides that no interest shall be paid for said operation. Even without regard to the balance of the quoted provision, it appears this waiver of interest is only as to the period before November 1, 1968. The quoted paragraph, after stating Randolph's duty to furnish funds or arrange for bank loans, further provides that interest at the current bank rate shall be charged. This presumably would apply to Randolph's advances; the bank would obviously charge their own rates, and no agreement to pay them would be required in the agreement. Most important, as to advances for excess inventory and machinery, there was no need for providing separately for interest; the inventory was to be settled for by Schrecks' executing a promissory note, secured by a security agreement on November 1, 1968, which would include interest, according to the agreement. As to interest on the excess contribution of machinery, the joint venture agreement would not need to provide for interest, because the excess machinery was to be paid for in full on January 1, 1969 (only two months after the execution of the agreement). The general rule is that interest on contributions of partnership assets is not allowable, in the absence of a written agreement to the contrary, until a balance has been struck, but that interest may be charged in a particular case if the equities require. See Wolf v. Murrane, 199 N.W.2d 90, 100 (Iowa 1972). We conclude that a requirement for payment of interest on these advances is clearly implied from the terms of the agreement. In addition, we find the equities of this case make it appropriate to grant Randolph interest on them. Under the joint venture agreement, if he had not financed the operations, they would have had to rely upon bank financing, at bank rates. This holding is consistent with the substantive law of partnership. See Coldren v. Clark, 93 Iowa 352, 372-3, 61 N.W. 1045, 1050 (1895) (interest allowed to partner advancing money to pay firm obligations) and Tacke v. Jennewein, 228 Iowa 701, 704-5, 293 N.W. 23, 24 (1940) (excess capital contributed by one party must be repaid before distribution of assets to the other, and is treated as a partnership debt). We hold that interest should be paid on the inventory and operating capital from November 1, 1968, to the date of termination, December 31, 1970, and upon the machinery from January 1, 1969, to the date of termination, all at the rate of five per cent per annum. Interest on the $20,000 cash contribution of Randolph was intended by the agreement to draw interest at the current bank rate. Evidence as to this rate showed it fluctuated during the period of the venture. It should be paid at the rate of eight per cent from November 1, 1968, to December 31, 1970. The principal amounts upon which interest shall be computed are: $60,240 (one-half Randolph's excess inventory contribution); $18,627.50 (one-half machinery difference); and $10,000 (one-half cash contribution).