UPA (1994) § 306 – partners liable for obligations of partnership. Usury laws may have been a factor. § 401(f) says
partners have equal rights.
Facts: In 1921, the firm of KN&K was in financial difficulty and a partner John R. Hall obtained a loan of $500,000 in
Liberty bonds from his friend Mr. Peyton and the firm used them as collateral to secure bank advances. Hall proposed
that Peyton and also his other friends Perkins and Freeman (known collectively as the trustees) should become partners.
All refused to become partners but they agreed to loan KN&K $2.5 million in liquid securities to obtain loans of $2
million. In return for the risk assumed, KN&K turned over its own securities which were too speculative to be used as
collateral. Peyton, Perkins, and Freeman were to receive 40% of KN&K’s profits until the securities were returned and
an option to join the firm. Perkins, Peyton and Freeman were to be kept informed of the conduct of the business and
consulted on important matters. They were also given a role in controlling the actions of the firm.
Issue: Was a partnership created between KN&K and the trustees?
Answer: No.
Analysis: If as a whole a contract contemplates an association of two or more persons for profit there is a partnership.
But, it might be that a sharing of profits is merely adopted as a method to pay a debt or wages, as interest on a loan or
for other reasons. The trustees were merely protecting their interest as a result of their money being at risk.