Meinhard v. Salmon,

CourtNew York Court of Appeals
Writing for the CourtCARDOZO
Citation164 N.E. 545,249 N.Y. 458
PartiesMEINHARD v. SALMON et al.
Decision Date31 December 1928

249 N.Y. 458
164 N.E. 545

MEINHARD
v.
SALMON et al.

Court of Appeals of New York.

Dec. 31, 1928.


Action by Morton H. Meinhard against Walter J. Salmon and another. Judgment for plaintiff was modified by the Appellate Division (223 App. Div. 663, 229 N. Y. S. 345), and defendants appeal.

Modified, and as modified affirmed.

Andrews, Kellogg, and O'Brien, JJ., dissenting.


[249 N.Y. 459]Appeal from Supreme Court, Appellate Division, First Department.

[249 N.Y. 460]Nathan L. Miller, Harold Otis, and Walter H. Bond, all of New York City, for appellants.

John W. Davis, Ralph Wolf, Edwin D. Hays, and Samuel R. Feller, all of New York City, for respondent.


[249 N.Y. 461]CARDOZO, C. J.

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 20 years, commencing May 1, 1902, and ending April 30, 1922. The lessee undertook to

[164 N.E. 546]

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 [249 N.Y. 462]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 were coadventures, subject to fiduciary duties akin to those of partners. King v. Barnes, 109 N. Y. 267, 16 N. E. 332. 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 [249 N.Y. 463]whole tract, and involving a huge outlay. The term is to be 20 years, but successive covenants for renewal will extend it to a maximum of 80 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 [249 N.Y. 464]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, 154 N. E. 303. 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

[164 N.E. 547]

construction. Beffled 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, better, the pre-emptive opportunity, that was thus an incident of the enterprise, Salmon appropriate to himself in secrecy and silence. He might have warned Meinhard that the plan had been submitted, and that either would be free to compete for the award. If he had done this, we do not need to say whether he would have been under a duty, if successful in the competition, to hold the lease so acquired for the [249 N.Y. 465]benefit of a venture than about to end, and thus prolong by indirection its responsibilities and duties. The trouble about his conduct is that he excluded his coadventurer from any chance to compete, from any chance to enjoy the opportunity for benefit that had come to him alone by virtue of his agency. This chance, if nothing more, he was under a duty to concede. The price of its denial is an extension of the trust at the option and for the benefit of the one whom he excluded.

No answer is it to say that the chance would have been of little value even if seasonably offered. Such a calculus of probabilities is beyond the science of the chancery. Salmon, the real estate operator, might have been preferred to Meinhard, the woolen merchant. On the other hand, Meinhard might have offered better terms, or reinforced his offer by alliance with the wealth of others. Perhaps he might even have persuaded the lessor to renew the Bristol lease alone, postponing for a time, in return for higher rentals, the improvement of adjoining lots. We know that even under the lease as made the time for the enlargement of the building was delayed for seven years. All these opportunities were cut away from him through another's intervention. He knew that Salmon was the manager. As the time drew near for the expiration of the lease, he would naturally assume from silence, if from nothing else, that the lessor was willing to extend it for a term of years, or at least to let it stand as a lease from year to year. Not impossibly the lessor would have done so, whatever his protestations of unwillingness, if Salmon had not given assent to a project more attractive. At all events, notice of termination, even if not necessary, might seem, not unreasonably, to be something to be looked for, if the business was over the another tenant was to enter. In the absence of such notice, the matter of an extension was one that would naturally be attended to by the manager of the enterprise, and not neglected altogether. At least, there was nothing in the situation to give warning to any one that while the lease was still in being, there [249 N.Y. 466]had come to the manager an offer of extension which he had locked within his breast to be utilized by himself alone. The very fact that Salmon was in control with exclusive powers of direction charged him the more obviously with the duty of disclosure, since only through disclosure could opportunity be equalized. If he might cut off renewal by a purchase for his own benefit when four months were to pass...

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1118 practice notes
  • St. John's Univ. v. Bolton, No. 08–CV–5039 (NGG)(JMA).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • December 10, 2010
    ...employment relationship is terminated. Abbott Redmont Thinlite Corp. v. Redmont, 475 F.2d 85, 88 (2d Cir.1973) (citing Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545 (1928)). While Bolton and Spireas were not literally working under a duty to acquire patentable inventions for St. John'......
  • Abernathy-Thomas Engineering Co. v. Pall Corp., Civil Action No. 96-CV-5315(DGT).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • June 27, 2000
    ...even if Pall and Abernathy had actually stood in that quintessential fiduciary relationship, the partnership, see Meinhard v. Salmon, 249 N.Y. 458, 463-64, 164 N.E. 545, 546 (1928) (Cardozo, C.J.), Pall would have had the right to terminate the relationship at any time, absent an agreement ......
  • Muller–Paisner v. Tiaa, No. 03 Civ. 6265(GWG).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • August 9, 2012
    ...honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior” of a fiduciary. Meinhard v. Salmon, 249 N.Y. 458, 463–64, 164 N.E. 545 (1928). As a matter of logic, however, these cases cannot possibly set the governing standard here because the relationsh......
  • Elmore v. State Farm Mut. Auto. Ins. Co., No. 24634.
    • United States
    • Supreme Court of West Virginia
    • June 22, 1998
    ...by the crowd[.] Kanawha Valley Bank v. Friend, 162 W.Va. 925, 928-929 n. 2, 253 S.E.2d 528, 530 n. 2 (1979), quoting Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928). See also Keesecker v. Bird, 200 W.Va. 667, 679, n. 12, 490 S.E.2d 754, 766, n. 12 (1997). We simply fail to c......
  • Request a trial to view additional results
1116 cases
  • St. John's Univ. v. Bolton, No. 08–CV–5039 (NGG)(JMA).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • December 10, 2010
    ...employment relationship is terminated. Abbott Redmont Thinlite Corp. v. Redmont, 475 F.2d 85, 88 (2d Cir.1973) (citing Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545 (1928)). While Bolton and Spireas were not literally working under a duty to acquire patentable inventions for St. John'......
  • Abernathy-Thomas Engineering Co. v. Pall Corp., Civil Action No. 96-CV-5315(DGT).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • June 27, 2000
    ...even if Pall and Abernathy had actually stood in that quintessential fiduciary relationship, the partnership, see Meinhard v. Salmon, 249 N.Y. 458, 463-64, 164 N.E. 545, 546 (1928) (Cardozo, C.J.), Pall would have had the right to terminate the relationship at any time, absent an agreement ......
  • Muller–Paisner v. Tiaa, No. 03 Civ. 6265(GWG).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • August 9, 2012
    ...honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior” of a fiduciary. Meinhard v. Salmon, 249 N.Y. 458, 463–64, 164 N.E. 545 (1928). As a matter of logic, however, these cases cannot possibly set the governing standard here because the relationsh......
  • Elmore v. State Farm Mut. Auto. Ins. Co., No. 24634.
    • United States
    • Supreme Court of West Virginia
    • June 22, 1998
    ...by the crowd[.] Kanawha Valley Bank v. Friend, 162 W.Va. 925, 928-929 n. 2, 253 S.E.2d 528, 530 n. 2 (1979), quoting Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928). See also Keesecker v. Bird, 200 W.Va. 667, 679, n. 12, 490 S.E.2d 754, 766, n. 12 (1997). We simply fail to c......
  • Request a trial to view additional results
2 firm's commentaries
  • Labor Day reflections, including some second thoughts, on the business of law (327)
    • United States
    • LexBlog United States
    • September 4, 2022
    ...of existing partners. Does anyone recall the well-established fiduciary duty that partners owe to other partners? See Meinhard v. Salmon, 164 NE 545, 446-47 (NY 1928) (partnership case taught to virtually every law student, noting that partners owe one another “the duty of the finest loyalt......
  • SEC Investment-Management Chief Speaks at Investment-Adviser Conference
    • United States
    • LexBlog United States
    • March 4, 2022
    ...Aug. 17, 2020, available at https://www.theatlantic.com/ideas/archive/2020/08/historian-historic-times/615208/. [5] Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928). [6] Based on analysis of data reported on Form ADV through the Investment Adviser Registration Depository (IARD) system as of Dec......
4 books & journal articles
  • Title 18 Insider Trading.
    • United States
    • Yale Law Journal Vol. 130 Nbr. 7, May 2021
    • May 1, 2021
    ...Marcel Kahan, Securities Laws and the Social Cost of "Inaccurate" Stock Prices, 41 DUKE L.J. 977 (1992). (98.) Cf. Meinhard v. Salmon, 164 N.E. 545, 546-48 (N.Y. 1928) (setting out the concept of usurpation of an entity's business (99.) See Goodwin v. Agassiz, 186 N.E. 659, 660 (Mass. 1933)......
  • RESTRAINING THE UNSUPERVISED FIDUCIARY.
    • United States
    • South Dakota Law Review Vol. 66 Nbr. 2, June 2021
    • June 22, 2021
    ...on behalf of the principal unless ordered by a court or requested by the principal" or others with standing). (60.) Mcinhardt v. Salmon, 164 N.E. 545, 546 (N.Y. 1928) (Cardozo, (61.) Durand v. Preston, 128 N.W. 129, 131 (S.D. 1910) (citing WILLIAM LAWRENCE CLARK & HENRY H. SKYLES, A TRE......
  • FIDUCIARY JUDGMENT RULES.
    • United States
    • March 1, 2021
    ...understanding the role of courts in corporate law if we think of judges more as preachers than as policemen."). (49.) Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. (50.) Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939). (51.) Meinhard, 164 N.E. at 548. (52.) Guth, 5 A.2d at 510. (53.) Meinhard......
  • Brown v. Pro Football, Inc.: the Supreme Court Gets it Right for the Wrong Reasons
    • United States
    • Antitrust Bulletin Nbr. 42-3, September 1997
    • September 1, 1997
    ...Significantly, the leading court decision recog-nizing this universally accepted rule, Meinhard v. Salmon, 249 N.Y. 458,164N.E.545 (1928),authoredby thenChiefJudgeCardozo,isoneinvolvingajointventure,notamore traditional partnership. In fact,Judge Andrews dissented in Meinhard specifically o......

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