Martin v. Peyton

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.