Meinhard v. Salmon

Brief Fact Summary.

One partner in a joint venture took advantage of an opportunity that arose from the partnership without informing his partner.

Synopsis of Rule of Law.

Members of a partnership owed duty of loyalty to each other and so must disclose opportunities that arise in order for both to have an equal chance to take advantage of it.

Facts.

Walter J. Salmon (Defendant) entered into a lease for a hotel. Defendant, while in course of treaty with the lessor as to the execution of the lease, was in course of treaty with Meinhard (Plaintiff), for the necessary funds. Plaintiff and Defendant were involved in a joint venture in regards to the property, for better or worse. Defendant was the manager of the property. Near the end of the lease, Elbridge Gerry became the owner of the reversion, and he approached Defendant. The tow entered into a new lease, which is owned and controlled by Defendant. Defendant did not tell Plaintiff about it. When Plaintiff found out about the new lease, he demanded that the lease be held in trust as an asset of the venture between Defendant and Plaintiff, which Defendant refused.

Issue.

When a partner appropriates the benefit of the partnership without making any disclosure to the other partner, will that act be a breach of loyalty?

Held.

Yes.
Joint adventurers owe to one another the duty of the finest loyalty, while the enterprise continues.  Defendant held the lease as a fiduciary, for himself and another, sharers in a common venture. If he had revealed this fact to Gerry, Gerry would have laid before both of them his plans of a new lease. The preemptive opportunity that was an incident of the enterprise, Defendant appropriated to himself in secrecy and silence.

The fact that Defendant was in control as the manager charges him with the duty of disclosure, since only through disclosure could opportunity be equalized. For him, the rule of undivided loyalty is relentless and supreme.  The subject matter of the new lease was an extension of the subject matter of the old one. A managing co-adventurer appropriating the benefit of such a lease without warning to his partner might expect to be reproached with conduct that was underhand, or lacking in reasonable candor, if the partner were to surprise him in the act of signing the new instrument.  The form of the equitable interest allotted to Plaintiff should attach at the option of Defendant to the shares of stock, which were owned by him or were under his control.

Dissent.

The issue here is whether the transaction was unfair and inequitable. There was no general partnership, merely a joint venture for a limited object, to end at a fixed time. The design was to exploit a particular lease. The interest terminated when the joint adventure terminated.

Discussion.

Partners in a venture have a fiduciary duty to each other. So, when an opportunity arises that can benefit both partners, but one partner takes advantage of it without informing the other, the fiduciary duty is deemed to have been breached. The opportunity belonged to the partnership, not to the individual partners, so one partner is considered to have stolen the opportunity from the partnership.