Martin v. Peyton NY 1927
Facts: Respondents/trustees lent their friend, a partner of K.N. & K firm, $2.5 million worth of liquid securities. The respondents/trustees were given 40% profit of the firm until return payment was made, and were able to make a profit anywhere between $100,000 and $500,000. The respondent/trustees were also given an option to join the firm if they, or any of them, express a desire to do so. Further, the respondents/trustees had the authority to inspect the firm books and veto any business they think highly speculative or injurious. A partner failed to notify plaintiffs of a speculative investment and as a result lost their money and owed a lot more. Defendants/trustees argue that they were creditors, while the plaintiff, who was a creditor of the firm, argued that they were partners and thus liable for the losses.
Issue: Are respondents/trustees partners of K.N.&K and thus jointly and severally liable for K.N. & K’s debts or are they merely lenders and not liable for K.N.&K’s debts?
Holding: Respondents and K.N. & K have not established a partnership, therefore, respondents are not jointly and severally liable for the debts of K.N. & K.
Reasoning: Usually when money is loaned, the lender does not get profit, they typically get interest. Since the lenders potential profit is capped at $500,000 here, it is likely that it prevented the relationship from becoming a partnership.
-This case distinguished from Cargill (case where principal gave a loan to alleged agent for wheat):
-In Cargill, the principal had operational control and a motivation to maintain the profitability of the company.
-In Cargill we asked if there is a Principal-Agent relationship and here we are looking to see if there is a partner relationship.
-The two concepts are pretty much the same; in an agency we must look at the amount of control that a principal has over an agent; here we are pretty much required to do the same thing.
-Professor thinks this case is a better illustration than Cargill.
-In a sense, each partner is a principal to other partners and at the same time each partner is an agent of the other partners.