Meinhard v. Salmon

Facts

In 1902, Walter Salmon leased the Bristol Hotel property at Fifth Avenue and Forty-second Street in New York for twenty years, agreeing to remodel it for offices at a cost of $200,000. Salmon entered into a written agreement with Morton Meinhard whereby Meinhard would provide half the necessary funds for reconstruction and operation, and in return would receive forty percent of net profits for the first five years and fifty percent thereafter, with losses shared equally. Salmon retained sole management power. The venture initially operated at a loss but later became highly profitable. In January 1922, with less than four months remaining on the lease, the property owner Elbridge Gerry approached Salmon about leasing the Bristol property together with adjoining parcels for a massive redevelopment project. Salmon, through his controlled corporation Midpoint Realty Company, executed a new lease on January 25, 1922, covering the entire tract with rent increasing from $55,000 to $350,000-$475,000 annually, a potential eighty-year term, and requiring construction of a new $3,000,000 building. Salmon never informed Meinhard of these negotiations or the opportunity. Meinhard learned of the lease in February 1922 and demanded it be held in trust as an asset of the venture.