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Business Organizations Keyed to Chasalow, 3rd Ed.
Martin v. Peyton
Citation:
246 N.Y. 213, 158 N.E. 77 (1927)Facts
In 1921, the banking and brokerage firm of Knauth, Nachod & Kuhne (K.N. & K.) faced severe financial difficulties due to unwise speculations. John R. Hall, a partner in the firm, approached his friends William Peyton, George Perkins, Jr., and Edward Freeman for assistance. The defendants initially refused to become partners but agreed to loan $2.5 million worth of liquid securities to K.N. & K. until April 1923. The firm could hypothecate these securities to secure loans up to $2 million. In return, the defendants would receive 40% of the firm’s profits (with minimum and maximum limits) and K.N. & K. would provide its own speculative securities as collateral. The agreement included extensive control provisions: the defendants would be kept informed of all transactions affecting their securities; the firm’s directing management would remain with Hall; the defendants would be consulted on important matters; they could veto highly speculative transactions; and each partner of K.N. & K. had to place their resignation with Hall, which could be accepted if Hall and the defendants agreed. The defendants also received an option to join the firm before June 1923 if they wished.
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