Martin v. Peyton
158 N.E. 77 (1927)

Facts:
Hall’s firm was having some financial trouble. He reached out to some friends Peyton, Perkins, and Freeman (defendants/respondents here) and they loaned $2,500,000 worth of good securities, so that the firm could use them as collateral to secure bank advances. There were a few control-related provisions in the agreement – e.g., trustees kept advised/informed, right to veto any business they find speculative, etc.

  • P claimed D were partners and, as such, liable for its debts.
  • D claimed they were creditors, not partners.

Side Note: Martin was the firm’s creditor.

Issue:
Were the investors partners or creditors?

Holding:
Creditors. Affirmed.

Reasoning:
Respondents’ measures taken as precautions to safeguard the loan were ordinary caution and did not imply an association with the business.

  • In other words, the creditors’ rights didn’t go so far as to place control of the day-to-day operations in their hands and make them liable as partners.