249 N.Y. 458, Meinhard v. Salmon

Citation:249 N.Y. 458
Party Name:MORTON H. MEINHARD, Respondent, v. WALTER J. SALMON et al., Appellants.
Case Date:December 31, 1928
Court:New York Court of Appeals

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249 N.Y. 458



WALTER J. SALMON et al., Appellants.

New York Court of Appeal

December 31, 1928

Argued December 4, 1928.

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[Copyrighted Material Omitted]

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Nathan L. Miller, Harold Otis and Walter H. Bond for appellants. Under the terms of the Salmon-Meinhard agreement Meinhard had no interest in Salmon's expectancy of renewal of the Bristol lease. (Lobsitz v. Lissberger Co., 168 A.D. 840; Jones v. Gould, 209 N.Y. 419; Heye v. Tilford, 2 A.D. 346; 154 N.Y. 757; London Assurance Co. v. Drennen, 116 U.S. 461; McPhillips v. Fitzgerald, 76 A.D. 15; 177 N.Y. 543; Russell v. Herrick, 127 A.D. 503; Ketchum v. Clark, 6 Johns. 144; Marquard v. N.Y. Mfg. Co., 17 Johns. 525; Waring v. Robinson, 1 Hoff. Ch. 524; Bank v. Carrollton Railroad, 11 Wall. 624.) The Midpoint lease was not in the nature of a renewal of the Bristol lease. (Harris v. Bedell Co., 248 N.Y. 109.) If Meinhard had a half interest in Salmon's expectancy of renewal of the Bristol lease and if the Midpoint lease comprehended a renewal of the Bristol lease, then Meinhard would be entitled only to a half interest in that part or proportion of the Midpoint lease constituting such renewal. (The Idaho, 93 U.S. 575; Ryder v. Hathaway, 21 Pick. 298; Acheson v. Fair, 3 Dru. & W. 512; 2 Con. & L. 298; O'Brien v. Egan, 5 L. R. Ir. Ch. 633.)

John W. Davis, Ralph Wolf, Edwin D. Hays and Samuel R. Feller for respondent. In view of the fiduciary relationship existing between the parties in respect of their ownership of the Bristol lease, neither party could obtain a renewal thereof for his sole benefit. (Mitchell v. Reed, 61 N.Y. 123; Robinson v. Jewett, 116 N.Y. 40; Thayer v. Leggett, 229 N.Y. 152; Selwyn v. Waller, 212 N.Y. 507; Beatty v. Guggenheim Exploration Co., 225 N.Y. 380; Essex v. Enwright, 214 Mass. 507; Trice v. Comstock, 121 F. 620; Blakeslee v. Sottile, 118 Misc. 513.) Defendant has not shown that the fiduciary

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relationship existing between the parties was terminated at any time. (Brady v. Erlanger, 165 A.D. 29; New York Bank Note Co. v. Hamilton Bank Note Co., 180 N.Y. 280; Barguilo v. California Wineries, 103 Misc. 691.)By the express terms of the agreement of May 19, 1902, plaintiff was entitled to "fifty per centum of the net profits arising or growing out of the leased premises. " It being conceded on the record that the renewal lease obtained by the defendant is valuable, said renewal lease represents a "profit arising or growing out of said leased premises. " (Mayer v. Nethersole, 71 A.D. 383; Eyster v. Centennial Board of Finance, 94 U.S. 500; Jones v. Davis, 48 N. J. Eq. 493.) The defendant is not aided because the owner planned to lease to him both plot A and plot B under one lease, with a common building, or because the owner negotiated with others and finally turned to the defendant to conclude the lease. (Beatty v. Guggenheim Exploration Co., 225 N.Y. 380.) Meinhard's rights are not affected by the fact that the Midpoint lease is upon other or different terms than the Bristol lease. (Selwyn v. Waller, 212 N.Y. 507; Maas v. Goldman, 122 Misc. 221; 210 A.D. 845.) Plaintiff is entitled to a one-half interest in the property covered by the Midpoint lease. (Beatty v. Guggenheim Exploration Co., 225 N.Y. 380; Holmes v. Gilman, 138 N.Y. 369.)


On April 10, 1902, Louisa M. Gerry leased to the defendant Walter J. Salmon the premises known as the Hotel Bristol at the northwest corner of Forty-second street and Fifth avenue in the city of New York. The lease was for a term of twenty years, commencing May 1, 1902, and ending April 30, 1922. The lessee undertook to change the hotel building for use as shops and offices at a cost of $200, 000. Alterations and additions were to be accretions to the land.

Salmon, while in course of treaty with the lessor as to the execution of the lease, was in course of treaty with

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Meinhard, the plaintiff, for the necessary funds. The result was a joint venture with terms embodied in a writing. Meinhard was to pay to Salmon half of the moneys requisite to reconstruct, alter, manage and operate the property. Salmon was to pay to Meinhard 40 per cent of the net profits for the first five years of the lease and 50 per cent for the years thereafter. If there were losses, each party was to bear them equally. Salmon, however, was to have sole power to "manage, lease, underlet and operate" the building. There were to be certain pre-emptive rights for each in the contingency of death.

The two were coadventurers, subject to fiduciary duties akin to those of partners (King v. Barnes, 109 N.Y. 267).As to this we are all agreed. The heavier weight of duty rested, however, upon Salmon. He was a coadventurer with Meinhard, but he was manager as well. During the early years of the enterprise, the building, reconstructed, was operated at a loss. If the relation had then ended, Meinhard as well as Salmon would have carried a heavy burden. Later the profits became large with the result that for each of the investors there came a rich return. For each, the venture had its phases of fair weather and of foul. The two were in it jointly, for better or for worse.

When the lease was near its end, Elbridge T. Gerry had become the owner of the reversion. He owned much other property in the neighborhood, one lot adjoining the Bristol Building on Fifth avenue and four lots on Forty-second street. He had a plan to lease the entire tract for a long term to some one who would destroy the buildings then existing, and put up another in their place. In the latter part of 1921, he submitted such a project to several capitalists and dealers. He was unable to carry it through with any of them. Then, in January, 1922, with less than four months of the lease to run, he approached the defendant Salmon. The result was a new lease to the Midpoint Realty Company, which is owned and controlled by Salmon, a lease covering the

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whole tract, and involving a huge outlay. The term is to be twenty years, but successive covenants for renewal will extend it to a maximum of eighty years at the will of either party. The existing buildings may remain unchanged for seven years. They are then to be torn down, and a new building to cost $3, 000, 000 is to be placed upon the site. The rental, which under the Bristol lease was only $55, 000, is to be from $350, 000 to $475, 000 for the properties so combined. Salmon personally guaranteed the performance by the lessee of the covenants of the new lease until such time as the new building had been completed and fully paid for.

The lease between Gerry and the Midpoint Realty Company was signed and delivered on January 25, 1922. Salmon had not told Meinhard anything about it. Whatever his motive may have been, he had kept the negotiations to himself. Meinhard was not informed even of the bare existence of a project. The first that he knew of it was in February when the lease was an accomplished fact. He then made demand on the defendants that the lease be held in trust as an asset of the venture, making offer upon the trial to share the personal obligations incidental to the guaranty. The demand was followed by refusal, and later by this suit. A referee gave judgment for the plaintiff, limiting the plaintiff's interest in the lease, however, to 25 per cent. The limitation was on the theory that the plaintiff's equity was to be restricted to one-half of so much of the value of the lease as was contributed or represented by the occupation of the Bristol site. Upon cross-appeals to the Appellate Division, the judgment was modified so as to enlarge the equitable interest to one-half of the whole lease. With this enlargement of plaintiff's interest, there went, of course, a corresponding enlargement of his attendant obligations. The case is now here on an appeal by the defendants.

Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of the finest

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loyalty. Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. 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. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the "disintegrating erosion" of particular exceptions (Wendt v. Fischer, 243 N.Y. 439, 444).Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.

The owner of the reversion, Mr. Gerry, had vainly striven to find a tenant who would favor his ambitious scheme of demolition and construction. Baffled in the search, he turned to the defendant Salmon in possession of the Bristol, the keystone of the project. He figured to himself beyond a doubt that the man in possession would prove a likely customer. To the eye of an observer, Salmon held the lease as owner in his own right, for himself and no one else. In fact he held it as a fiduciary, for himself and another, sharers in a common venture. If this fact had been proclaimed, if the lease by its terms had run in favor of a partnership, Mr. Gerry, we may fairly assume, would have laid before the partners, and not merely before one of them, his plan of reconstruction. The pre-emptive privilege, or...

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