The second view is the more logical one, and for that reason a partner should not be compelled to pay interest on the profits which have been earned, and which are, theoretically at least, due to him, altho they have not as yet been stated. Moreover, the amount which a partner may withdraw is commonly specified in the articles of copartnership, or if the articles make no provision in regard to withdrawals, the partners may agree among themselves as to the amount to be withdrawn. They are in a position effectually to prevent any one of their number from overdrawing his account.
It is not uncommon, however, to permit a partner to draw more than the sum mutually agreed upon, and in this event the partner who has made the over draft will undoubtedly be compelled to pay interest for the privilege. But if the partners halie permitted the overdraft, and no agreement was made and no conditions were laid down previously by the partners themselves, they cannot force the partner who over draws to pay interest on the overdraft.
14. Loans of partner may loan money to his firm. The loan may be in the form of excess capital, either contributed or represented by an ac cumulation of profits—it may or may not be se cured by a note of the firm; or the amount loaned may appear in a special-loan account of the partner. The partner who loans the money has clearly risked more in the venture than his fellow-partners, and therefore for his additional risk he is entitled to com pensation, in the form either of increased profits or of interest. The latter method of compensating the
partner is the more usual. If the loan takes the form of excess capital it would be better to reduce the capital account to the agreed amount and transfer the excess to a special-loan account, because the books of the firm ought to reflect actual facts.
15. Interest on partners' loans.—It is sometimes held, in litigation, that when a partner voluntarily allows money in excess of his capital contribution to remain in the business, he is not entitled to claim in terest on the excess. The theory is that if it was in tended that interest was to be allowed on excess capi tal, the partnership agreement would have provided for it. This view has apparently been modified in New York State by a recent decision of the Court of Appeals, to the effect That the law will presume interest in such cases, and if no rate of Interest is specified the court will allow the legal rate. When interest is charged on a partner's loan it should be charged to the regular interest account of the busi ness, inasmuch as it is the same as interest on money borrowed from a bank or from an outsider.