Meinhard v. Salmon is a widespread case in which the Court of Appeal of New York believes that business partners own fiduciary duties to each other when the commercial opportunities arise in the course of a partnership. The Meinhard v Salmon is often read to students of law schools. This case was argued on the 4th of December, 1928 and decided on the 31st December of the same year.
Meinhard v. Salmon case brief: Meinhard filed a lawsuit against Salmon, who is his co-founder in the joint venture after Salmon appropriated the opportunity that should be offered to the company. Salmon claimed that his external entrepreneurial activity was not a part of the agreed joint venture. The Salmon appealed against a resolution in which the Appeals Division ruled that he had to share the profits with his partner Meinhard.
The Salmon (defendant) performed a twenty-year lease (Bristol Lease) for the Bristol hotel, which he envisioned to convert to a retail space. Though, Salmon did not have enough money for the reconstruction. He asked for money from another businessman, whose name was Morton Meinhard. He agreed to give the half of the money amount which is necessary for reconstruction in exchange for a share in profits. In April 1902, Salmon established a joint venture with Meinhard in order to rent a hotel that is in New York, Bristol Lease for a twenty-year period. Based on the terms of the agreement, Meinhard provided the largest part of financing this lease, while Salmon at that time managed the whole property.
The joint venture agreement stipulated that Meinhard will pay a half of the total amount for the exploitation of the property and management, and Salmon will pay Meinhard the forty percent of the net profit in the first five years, and after five years fifty percent. Although under the terms of the agreement, both partners carried identical responsibility for all losses. Despite the fact that the company lost money during the first years, it became very profitable. At the end of the contract in 1922, Salmon received a new lease offer from Gerry, who became the owner of the property.
This new lease contract covered a more massive property plot for 20 years but also had a reserve to extend the lease to eighty years. A new contract was signed between Gerry and the company that belonged to only Salmon. Salmon did not transfer the Meinhard new lease until the deal was completed. Meinhard learned about the deal in about a month. Proceeding from this, Meinhard demanded that this lease is transferred to trust management as an asset of a venture fund for a joint venture, however, Salmon denied this Meinhard.
Proceeding from this, Meinhard filed a lawsuit against Salmon on the compulsory execution of his share. He referred to the fact that Salmon usurped for himself one commercial opportunity, which in fairness belonged to their joint venture. Thus, Salmon broke his fiduciary duties to the partner. The court of the first instance upheld the plaintiff. The court found that Meinhard's share in the expanded business should be 25%. The court of the second instance objected that the shares of entrepreneurs in the initial partnership were 50 to 50, so this proportion should be preserved in the new project.
Actually, the court considers that the fiduciary duty of partners is violated exactly where the partner in the joint venture did not inform his partner about the lucrative opportunity offered by the outside party. In addition to this, the outside party did not even know about the actuality of the partnership. The partner took the advantage only of himself. According to the judge, Salmon, having learned about the chance, had to discuss it with a partner and give him the opportunity to participate in the project. Therefore, after the cross-appeals, the appeals division of the court increased Meinhard's interest up to the fifty percent of the entire lease.