Jensen v. Schreck
| Decision Date | 21 February 1979 |
| Docket Number | No. 59612,59612 |
| Citation | 275 N.W.2d 374 |
| Parties | Merle D. JENSEN, Appellant and Cross-Appellee, v. Dennis SCHRECK and Jerome Schreck, Appellees and Cross-Appellants. Dennis SCHRECK and Jerome Schreck, Appellees and Cross-Appellants, v. Howard RANDOLPH, Appellant and Cross-Appellee. |
| Court | Iowa Supreme Court |
Fred Louis, Jr. and Robert Kohorst, Louis, Moore & Kohorst, Harlan, for appellants and cross-appellees.
Claus H. Bunz and John R. Mugan, Hansen, Bunz & Mugan, Manning, for appellees and cross-appellants.
Considered by REES, P. J., and McCORMICK, ALLBEE, McGIVERIN and LARSON, JJ.
This action arises out of a joint venture of Howard Randolph, Dennis Schreck and Jerome Schreck, known as Rolling Ridges Ranch, a farming and livestock operation in Guthrie County. This venture fell on hard times and was dissolved as of December 31, 1970. An action for collection of an account was followed by a cross-petition for an accounting and to set aside a real estate contract forfeiture. It is from the trial court's decree in the accounting and its ruling on Randolph's proceedings to forfeit a real estate contract with Dennis Schreck that this appeal and cross-appeal are taken. The original plaintiff, Jensen, is no longer party to these proceedings. We modify the decree of the trial court and remand for further proceedings.
The joint venture agreement between Randolph and Schrecks was executed on October 18, 1968, but was "deemed to have commenced on June 1, 1968." Randolph was to provide the land, and the Schrecks the labor, for this venture. Profits and losses were to be borne one-half by Randolph and one-half by the two Schrecks. All machinery, livestock and farm produce were to be owned one-half each; however, the initial contributions of these items were made largely by Randolph, together with all of the starting capital. The joint venture agreement's provisions (or lack of them) regarding Randolph's right to interest on these excess contributions gave rise to part of the dispute here. During the life of the joint venture, Randolph deposited to Schrecks' bank account several payments, agreed by all parties to be for living expenses and totaling $11,000. Randolph contends this was a loan to Schrecks, to be repaid upon final joint venture settlement; they say it was a gift, and even if it was a loan Randolph forgave it. The facts will be stated in more detail as they apply to disposition of this issue. The trial court also held forfeiture of Schrecks' right under a real estate contract was not illegal on grounds of unconstitutionality or unconscionability.
The issues for determination are: (1) did the trial court correctly rule in the accounting case as to the rights and liabilities of the joint venturers in the farming operations; (2) did it correctly deny Randolph recovery of the $11,000 "living expenses"; and (3) did it correctly rule that the forfeiture provision of the real estate contract was enforceable?
The trial court ordered the appointment of a certified public accountant as a master under Rule of Civil Procedure 207. The master examined the records of the joint venture and filed his report with the court. He was also examined and cross-examined at the trial. His allocation of certain items of expense to the joint venture and to them personally give rise to some of Schrecks' complaints on this appeal, even though the trial court did not consider those matters in the decree. We have examined the report of the special master and based upon it, and the other evidence presented at trial, conclude modifications in the accounting must be made.
After Schrecks served notice in May, 1970, of their intention to terminate the joint venture at the end of the year, they entered into a contract with third parties to sell them their interest in the joint venture for $58,000. That sale agreement provided:
The trial court used this sale figure to determine the value of Schrecks' interest as of January 1, 1971. It said:
. . ."
It deducted $4,914.79 from separate transactions to arrive at a net amount owed by Randolph to Schrecks of $53,085.21. Appellant complains that this computation failed to give consideration to several matters involved in the venture, and we agree.
The law governing operations of, and accountings in, joint ventures is that generally applicable to partnerships. Berry Seed Co. v. Hutchings, 247 Iowa 417, 427, 74 N.W.2d 233, 239 (1956); Goss v. Lanin, 170 Iowa 57, 61, 152 N.W. 43, 45 (1915).
Actions for accounting upon dissolutions of partnerships are in equity and our review is therefore de novo. Engel v. Vernon, 215 N.W.2d 506, 512 (Iowa 1974). We are not bound by the findings of the trial court but give weight to them. In re Marriage of Winegard, 257 N.W.2d 609, 613 (Iowa 1977).
We conclude that the award to Schrecks by the trial court was incorrectly based upon the amount of the sale price and failed to consider underlying claims and obligations which must be considered in an action for accounting.
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...
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