Meinhard v. Salmon (N.Y. 1928)
§ Joint venture to make improvements (shops and offices) on leased property between Meinhard (money guy) and Salmon (sole power to manage, lease, underlet, and operate)
§ Profits would be shared 60/40 for first 5 years and 50/50 thereafter
§ Losses would be shared equally
§ Gerry approached Salmon (the managing partner) with business opportunity involving the question in property as well as additional property nearby
· Salmon became the sole lessee of the property
§ Salmon had not told Meinhard anything about this new business opp.
§ When Meinhard eventually became aware of this, he made demand on Salmon that the lease be held in trust as an asset of the venture,
§ At a minimum, Salmon, the managing partner, owed a duty to disclose this business opportunity to Meinhard.
· A different result would be likely if there were lacking any nexus of relation between the business conducted by the manager and the opportunity brought to him as an incident of the management.
· Here, however, the subject-matter of the new lease was an extension and enlargement of the subject-matter of the old one.
· Need to give partner a chance to compete
§ Court allotted Meinhard one share less than half of the shares in the new lease.
§ Doesn’t matter that the partnership was going to end before the new lease would start
§ Note: arguably, the managing partner owes more of a fiduciary duty to the other partners (than they would owe to him)
§ The two were coadventurers, subject to fiduciary duties akin to those of partners.
§ “A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.”
· Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary duties.