Martin v. Peyton - Lecture notes 8 PDF

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Case Brief and Notes for Business Organizations I...

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MARTIN v. PEYTON 246 N.Y. 213, 158 N.E. 77 (1927) FACTS: Parties: Appellant: Martin (Π) Appellee: Peyton (Δ) Procedural History:  Relevant Facts: 

The firm K.N. & K had some financial difficulties

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Δ lent one of the partners $500,000 of liberty bonds to use as collateral

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The firm needed more money so from Δ and 2 others an agreement was drawn up o Δ loaned $2.5 million in liquid securities to be paid back o To insure against loss the firm turned over speculative securities to Δ o Δ were to receive 40% of the profits until the loan was paid back not exceeding $500,000 and not less than $100,000, Δ still collected dividends on loaned securities o Δ had option to join the firm if they chose o Δ were trustees of the loan, the securities of which were not to be mingled with the firms other securities o The firm had the right to sell collateral securities but the profits stayed with trustees so there was always $2,000,000 hypothecation o Δ could inspect the books and veto any business they think highly speculative or injurious

ISSUE: 

Whether despite an agreement to the contrary, a partnership relationship arose

PARTIES’ ARGUMENTS: Plaintiff:

 Defendant:  DISPOSITION OF THE COURT:  RULE OF LAW:  HOLDING: 

This was a simple loan with compensation and not a partnership agreement

COURT’S REASONING:   

Δ were just protecting their investment in a speculative market Δs limited control over the firm was just caution due to the speculative nature of the securities being invested in NY Partnership law §11(d) profits are not prima facie evidence if profits are interest on a loan, though the amount of payment vary with the profits of the business...