Martin v. Peyton

158 N.E. (1927)


Hall was a partner of a business firm and friend of D.  Hall obtained a business loan from D to provide the business firm with collateral.  The loan was not enough.  D and others, wanting to help, began discussing forming  a partnership.  This “met a decided refusal.”  Eventually an agreement, was reached – expressed in three documents.  D and others lent P millions of dollars in “liquid securities.”  P’s business went belly up.  P and a long line of creditors attempted to collect on the debts owed by arguing that D and others were in fact partners with P, rather than another creditor to P.

P and the creditors argued that many aspects of the agreement implied a partnership.  As part of the condition of the loan, the repayment was structured so that 40% of profits would be returned to D and others; and there was an option to become partners.

Plaintiffs express that the agreements related to the business undertaking were not a false expression or incomplete expression of the intention of the parties.”  Plaintiff claim the expression of the defendants in the agreement was that the defendants wanted to form a partnership.


“If the (written contract) expresses in good faith the full understanding and obligation of the parties, then it is for the court to say whether a partnership exists.”


Whether they “agreed to so associate themselves with the firm as to carry on as co-owners of a business for profit.”


No, D was not a legal partner.  Each and every element of the agreement D and others had with P was used as a method of protection against the risk posed by the loan to P.  The idea that D was allowed to veto certain operational undertakings, per an agreement with P, denoted their desire for security for repayment of the loan.  Also, the agreement for 40% of repayment of profits, was structured as a repayment of the loan, not an indication of co-ownership.  Finally, the opportunity for opting into ownership at the end of the loan, while unusual, is not enough to show that D and others were legal partners with P.

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