Duties of Partners

Question 1

Meinhard v. Salmon (NY 1928)

Answer 1

Facts: Joint owners in hotel (20 yr term, 60% profits to Salmon first 5 yrs, 50/50 next 15 yrs). 3P owns property around hotel, wants Salmon to dev’p it, enter in agmt that Salmon’s Co will lease it (20 yrs & auto renewal). Meinhard finds out & sues bc says p-ship just coming to end & Salmon took larger opportunity for himself, should have shared it
Issue: What duty did Salmon owe Meinhard (i.e., his p/n)?
Hold: Duty to Disclose. If you don’t tell p/n about opportunity, you have to share it 50/50 (here it was 51s/49m)
Rule: While p-ship continues, p/ns owe duty of loyalty, stricter than morals of marketplace, not honesty alone but the PUNCTILO OF AN HONOR THE MOST SENSITIVE is the standard of behavior.
Reasoning: Cardozo applies jukebox A penalty, take away incentive to fuck other p/n. Thinks Salmon just got lucky standing there, so in joint ventures, like co-p/ns, owe duty of loyalty while enterprise continuesàTell your p/n about opportunity and compete Efficient? Alternative makes agency & tranx costs really high
Note: What we get out of this is the Right of First Refusal. Competition sucks, so p/n will write agmts to avoid penalty