Martin v. Peyton N.Y. Ct. Of App.,

158 N.E. 77, 246 N.Y. 213 (1927)

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Nature of the Case

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Facts

Martin (P) claims that Peyton (D) became partners in the firm of Knauth, Nachod & Kuhne. K. N. & K. found itself in financial difficulties. Hall (D1) was one of the partners. D obtained a loan of almost $500,000 of Liberty bonds from D, which K. N. & K. might use as collateral to secure bank advances. That was not enough money. D also solicited George W. Perkins, Jr., and with Edward W. Freeman. A proposition was made that D and Mr. Freeman or some of them should become partners. That was refused, but an agreement was reached. Ds were to loan K. N. & K. $2,500,000 worth of liquid securities, which were to be returned to them on or before April 15, 1923. K. N. & K. were to turn over to them a large number of their own securities which may have been valuable, but which were of so speculative a nature that they could not be used as collateral for bank loans. Ds were to receive 40 percent of the profits of the firm until the return was made, not exceeding, $500,000 and not less than $100,000. Ds were also were given an option to join the firm if they or any of them expressed a desire to do so before June 4, 1923. Ds were called 'trustees.' The loaned securities when used as collateral are not to be mingled with other securities of K. N. & K., and the trustees at all times are to be kept informed of all transactions affecting them. To them shall be paid all dividends and income accruing therefrom. Until the securities are returned the directing management of the firm is to be in the hands of D1, and his life is to be insured for $1,000,000, and the policies are to be assigned as further collateral security to the trustees. The trustees were to be kept advised as to the conduct of the business and consulted as to important matters. They may inspect the firm books and are entitled to any information they think important. Finally, they may veto any business they think highly speculative or injurious. The trustees may not initiate any transaction as a partner may do. They may not bind the firm by any action of their own. Each member of K. N. & K. was to assign to the trustees their interest in the firm. The trustees also had the 'option' to enter the firm at a later date if they desire to do so by buying 50 percent or less of the interests therein of all or any of the members at a stated price. Or a corporation may, if Ds and the members agree, be formed in place of the firm. Each member of the firm was to place his resignation in the hands of D1. If at any time, he and the trustees agree that such resignation should be accepted, that member shall then retire, receiving the value of his interest calculated as of the date of such retirement.