Meinhard v. Salmon

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Meinhard v. Salmon by Mind Map: Meinhard v. Salmon

1. Facts

1.1. Parties

1.1.1. Plaintiff - Morton H. Meinhard

1.1.2. Defendant - Walter. J. Salmon

1.1.3. Louise M. Gerry - Original owner of the Hotel Bristol and Lessor who signed the first 20 year lease with Mr. Salmon

1.1.4. Elbridge T. Gerry - The current owner of the property

1.1.5. Midpoint Realty company - Mr. Salmon's Realty company through which the second lease was signed.

1.2. What Happened

1.2.1. Louisa Gerry leased the Hotel Bristol property to Mr. Salmon in 1902 signing a 20 year lease

1.2.2. Mr. Salmon wanted to renovate the property and needed $200,000 To complete this renovation Mr. Meinhard agreed to give Mr. Salmon the required Capital thus they signed a deal.

1.2.3. Mr. Salmon and Mr. Meinhard Became "coadventurers" in the This was done with the intention to convert hotel property into shops and offices. According to the partnership agreement, Mr. Salmon was supposed to Manage Lease, and operate the property Also, in return of his investment, Mr. Salmon had to pay Mr.Meinhard 40% of the profits for first 5 years and 50% thereafter. Losses would be shared equally by both of them.

1.2.4. Nearing the end of the lease in 1922, Mr. Salmon exclusively made a deal with the Mr. Elbridge T. Gerry , This deal was made through Midpoint Realty which was solely owned by Mr. Salmon. The lease was signed for 20 years and with a proposal to increase it unto 80 years. The existing building would remain for 7 years then it would be torn down and reconstructed. The lease was $55000 would go unto 350,000 for new construction Mr. Meinhard had no information about this deal between Midpoint Realty and Mr. Elbridge T. Gerry.

1.2.5. After Meinhard found out Salmon re-signed the lease without making a joint decision, Meinhard sued Salmon for failure to disclose valuable information that arose during the partnership.

1.3. Procedural History

1.3.1. A referee gave judement for the plaintiff (Meinhard), limiting Meinhard's interest in the lease to 25% of the profits. Salmon appealed and the case went to the NY Court of Appeals. Appellate court increased the profits given to Mr. Meinhard to 50%

2. Issue

2.1. Is Mr Salmon Obligated to inform and include Mr. Meinhard in his endeavors with Mr Elbridge. Gerry given that they were co adventurers?

2.1.1. Is there a breach of fiduciary duty when a partner withholds valuable information, and then independently reaps all benefits of that information presented during, or as a result of, the partnership?

2.1.2. Do business opportunities arising in a partnership venture belong to the all partners, or an individual partner?

3. Rule of Law

3.1. Partnership law

3.1.1. Partners in business are owed a duty of loyalty and Fudiciary duties therefore should disclose opportunities that should occur so that both partners have a fair chance to reap the benefits of that opportunity. When opportunities arise in a partnership, they belong to the partnership not the individual partners. When one partner takes advantage of an opportunity depriving the others of the same advantage it is considered breach of partnership

3.2. Moral standards of Loyalty and Duty of good faith

3.2.1. In the case opinion it was clear that partners have duty of good faith towards each other and it is in this faith that they should be willing to share any opportunities with each other

4. Application

4.1. Plaintiff stated that:

4.1.1. As an agent in a joint venture, there is an obligation to act as a fiduciary of that venture in any deal or transaction being made. As a partner, the plaintiff is entitled to an interest in the second lease.

4.2. Defendant countered that:

4.2.1. There was no partnership, and there was merely a joint venture that was set to expire at the end of a fixed period. The interest should have concluded when the joint venture concluded.

5. Conclusion

5.1. The NY Court of Appeals ruled in favor of the plaintiff, increasing the originally-awarded interest from 25% to 50%.

5.2. US supreme court affirmed lower courts judgement , reduced the award to 49%

5.2.1. Chief justice Cordoza, along with Judges Pound, Crane and Lehman ruled in favor of Mr. Reinhard whereas, Judges Andrews, O'Brien, Kellogg dissented the judgement In his opinion, Cordoza reasoned, "Joint adventurers, like co-partners, owe to one another, while the enterprise continues, the duty of finest loyalty." Business partners have fidiciary duties to one another when an opportunity occurs during the partnership Also he stressed on the moral standards, loyalty, and affirmed that partners should follow duty of good faith in contracts. In his dissenting opinion Andrews argued, that Mr. Salmon had done his dues as long as the first lease was signed. Thermos of the new lease were different than that of the old one and he believed that this was beyond the scope of the adventure that Mr. Salmon and Mr. Meinhard has entered into.

6. Impact

6.1. This is a Landmark case in field of corporate and partnership law and is still cited even though it is almost 100 years to the judgement.

6.1.1. It has been cited by 5308 cases with 7 having negative treatment

6.2. Lawrence v. Cohn United States District Court, S.D. New York. April 29,2002 197 F.Supp.2d16 2002 WL 768485

6.2.1. Business Organizations: “Partnership agreement’s right of first refusal on partnership interests did not apply to inside offer”. The Defendant’s motion was granted. The conclusion stated “cases like Meinhard v Salmon and Wootten v Wootten reinforce Cohn’s contention that his individual ownership position and control status as general partner must be taken into account in equitable division.”

6.3. Matter of Bennett United States Court of Appeals, Fifth Circuit. April 19, 1993 989F.2nd 779 1993 WL 117777

6.3.1. “Adversary proceeding was brought to determine dischargeability of debt owed by bankrupt managing partner of managing partner of limited partnership. The United States Bankruptcy Court for the Northern District of Texas entered judgment in favor of managing partner, and limited partners appeal.” Ruling was reversed and rendered. The court quoted Meinhard v Salmon “a managing partner of their partnership enterprise, respondent owed his partners even a greater duty of loyalty than is normally required” Conclusion: Render judgment in favor of the limited partners in the amount of $1,904,204.40.

7. Importance

7.1. Business professionals, including those who are interested in going into a joint venture with a partner, care about this decision so that they may understand the roles, duties, and fiduciary responsibilities expected by the law. This decision protects business affiliates from:

7.1.1. Exclusion of opportunities that occur from the relationship.

7.1.2. Arrangements being made without the knowledge of all relevant parties/individuals.

8. Influence

8.1. Business partners will disclose information pertinent to the opportunities and outcomes that occur from doing business together.

8.2. Business partners will not be legally permitted to exclude or take advantage of one another through secrecy or the withholding of information.