Business Associations, Pages 135–139

Martin v. Peyton

Court of Appeals of New York, 1927

Facts:

Hall borrowed $500,000 from Peyton for his firm of Knauth, Nachod and Kuhne. It needed more money though, so he negotiated with three more people—the defendants. He offered to make them partners, but they refused. Finally, they reached an agreement whereby the defendants would loan contract. N. & contract $2,500,000 of liquid securities to allow the firm to secure loans of $2,000,000, while the firm gave defendants more speculative securities. The defendants were also to receive 40% of the profits of the firm until they were repaid, limited to between $100,000 and $500,000.

Hall was the directing manager of the firm until the securities were repaid, and a $1,000,000 life insurance policy was taken out upon him and assigned to defendants. Defendants were to be kept advised and consulted as to the business, and they had veto power over any speculative or injurious business. Defendants were assigned interests in the firm, although without giving the firm an obligation to continue doing business. Finally, defendants were permitted to enter the firm by buying 50% of it from the members at a stated price, and they were given the power to require or deny resignations.

Plaintiff sued defendants for the debts of contract. N. & contract, alleging that they were partners and thus liable therefor.

Issue:

Were defendants partners of the firm?

Rule:

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If as a whole a contract contemplates an association of two or more persons to carry on as co-owners a business for profit a partnership there is. On the other hand, if it be less than this no partnership exists. Passing on the contract as a whole, an arrangement for sharing profits is to be considered. It is to be given its due weight. But it is to be weighed in connection with all the rest. It is not decisive.

Reasoning:

While some terms are somewhat unusual, they do not show that a partnership was created. They were merely terms for trustees to secure sufficient collateral.

Holding:

No, defendants were not partners of the firm. Affirmed with costs.


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