Following is the case brief for Meinhard v. Salmon, New York Court of Appeals, (1928)
Case summary for Meinhard v. Salmon:
- Morton Meinhard and Walter Salmon entered into a business venture together, where Salmon would manage and Meinhard would initially fund the business throughout the duration of a 20 year lease made with Hotel Bristol.
- With a few months left on the 20 year lease, the new lessor approached Salmon about a new business venture, which arose from his management of the business venture held by both Meinhard and Salmon.
- Salmon failed to inform Meinhard about the opportunity and decided to sign a new lease with the new lessor. Meinhard sued Salmon.
- The court held that Salmon violated his fiduciary duty to Meinhard when he failed to inform him about the beneficial opportunity received as a result from the joint venture.
Meinhard v. Salmon Case Brief
Statement of the facts:
Salmon and Meinhard entered into a joint venture at the same time Salmon entered into a 20 year commercial lease with the Bristol hotel. The agreement between Salmon and Meinhard outlined that Meinhard would pay half of the operating and managing expenses to Salmon, while Salmon paid Meinhard 40 percent net profits for the first five years. After the initial five years, the 40 percent in net profits would increase to 50 percent. Each agreed to share equally in loss. After the first couple of years the joint venture became extremely profitable and a new lessor acquired rights to the initial 20 year lease. The land surrounding the hotel was also owned by the new lessor, who wanted to sell it to someone to construct new buildings. Salmon and the new Lessor entered into a new 20 year lease where Salmon would construct and manage the nearby land without telling Meinhard. When Meinhard found out about the second lease, he requested it to be placed in a trust held by the initial joint venture.
The lower court found for Meinhard, granting him a 25 percent interest in the second lease. The appellate court affirmed the lower court’s decision, but increased Meinhard’s share to 50 percent.
Rule of Law or Legal Principle Applied:
Each co-adventurer has a fiduciary duty to the other to share in all the benefits received as a result from the joint venture.
Issue and Holding:
Is it mandatory for a co-adventurer to inform the other co-adventurer about a business opportunity that arises as a result of the initial joint venture? Yes.
The New York court of appeals affirmed the lower court’s judgement.
The Court held that co-adventurers owe each other a fiduciary duty. When a co-adventurer manages a joint venture’s enterprise, they owe the strongest fiduciary duty to the other members.
Here, the second lease between Salmon and the new lessor was an extension or result of the initial lease, which Meinhard held a substantial investment in.
Salmon was provided with the opportunity to enter into a second lease due to his management of the hotel property. Since Salmon’s opportunity evolved from his management of the co-adventure, he was obligated through his fiduciary duty to disclose the second opportunity to Meinhard. Salmon breached his fiduciary duty to Meinhard when he kept his transaction of the new lease from Meinhard because it prevented Meinhard from utilizing the opportunity which transpired from their joint venture.
The Court affirmed the lower courts decision and required the trust attaching to the shares of stock to be granted to Meinhard equally, with the exception of one share to Salmon to ensure his ability to control the property under the second lease.
Concurring or Dissenting opinion:
Salmon’s fiduciary duty to Meinhard was not violated because it ended upon the expiration of the lease. Salmon fulfilled his duty to Meinhard by managing the Bristol Hotel property and distributing Meinhard’s profits throughout the duration of the lease.
Co-adventurers owe each other a fiduciary duty that extends to opportunities arising out of the initial business venture.