Friday, October 19, 2012

Meinhard v. Salmon case brief

Meinhard v. Salmon
164 N.E. 545

Synopsis: Asserting that his outside business activities were not part of an agreed upon joint venture, defendant partner appealed from a judgment in which the Appellate Division of the Supreme Court in the First Judicial Department (New York) held that defendant partner was required to split profits with plaintiff partner.

-In 1902, Salmon bought a 20-year lease for the Hotel Bristol, owned by Gerry. The hotel was located on prime real estate at 5th Avenue and 42nd Street in New York, and Salmon wished to convert the hotel it to shops and offices.
-He did so in a joint venture with Meinhard and they put the terms of their relationship in writing. Meinhard provided the investment capital while Salmon managed the business.
-Both partners were to share equally in the profits and losses of the venture. Meinhard was given the sole power to assign the lease during the term of the venture. The venture was created to terminate at the end of the lease.
-After 20 years, as the lease was expiring and the joint venture coming to an end, the owner of the reversion of the lease, Gerry, approached Salmon to negotiate a substantial redevelopment of the property.
-Gerry was ignorant of the partnership. The terms of the new lease contemplated destruction of the then-existing buildings after a period of seven years followed by reconstruction. Salmon resigned the lease in his individual capacity without telling Meinhard.
-When Meinhard found out, he sued. Meinhard argued the new opportunity belonged to the joint venture and sued to have the lease transferred to a constructive trust. Salmon argued any interest in the new lease could not belong to the joint venture since both parties expected the venture to terminate when the first lease expired.
-A referee agreed the opportunity belonged to the joint venture, and awarded Meinhard a 25% interest (based on Meinhard's half interest in half the property). The Appellate Division ratcheted it up to 50%. Salmon appealed from that decision.

ISSUE: Is a joint adventurer required to inform another co-adventurer of a business opportunity that occurs as a result of participation in a joint venture?

RULE: Co-adventurers were subject to fiduciary duties akin to the fiduciary duties of partners.

-The fiduciary duty of communication was breached where a partner in a joint venture failed to inform his co-partner of a profitable opportunity that was offered by a third-party who was ignorant of the partnership.
-Furthermore, the duty of loyalty was breached where the partner appropriated to himself a benefit arising from his status as a partner without allowing his co-partner an opportunity to compete.

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