Meinhard v. Salmon

164 N.E. 545 (1928)

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Nature of the Case

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Facts

Salmon (D) entered into a lease agreement for a term of 20 years for the Hotel Bristol. He undertook to change the hotel building for use as shops and offices at a cost of $200,000. Additions and alterations were to be accretions to the land. At the same time, he was in negotiations with Meinhard (P) for the necessary funds. Under the agreement, P was to pay to D half of the money requested to reconstruct, manage, alter and operate the property. D was to pay P 40% of the net profits for the first five years of the lease and 50% for the years thereafter. Parties were to bear losses equally. D was to have sole power to manage, lease, underlet and operate the building. During the first few years, the building was operating under loss. At the end of the lease Eldridge Gerry, owner by reversion, after few unsuccessful attempts with other dealers, approached D with a proposition to destroy the existing buildings and build new ones. The resulting lease with the Midpoint Realty Co., owned and controlled by D, covered the whole track of land owned by Gerry (Bristol Hotel, one lot adjoining it and 4 lots on 42nd Street). The term of the lease was for 20 years, with a possibility of extension to 80. The existing buildings were to remain for 7 years and then be torn down and replaced by new building at a cost of $3,000,000. The rental, which was $55,000, was to be from $350,000 to $475,000. The lease between Gerry and the Midpoint Realty Company was signed and delivered on January 25, 1922. D had not told P anything about it. P discovered the deal and demanded 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. D refused and P sued. Referee gave the judgment for the P and awarded 25% with interest in the lease, because of estimated P's equitable interest in the value contributed by Bristol Hotel. Appellate division modified to expand the equitable interest to the whole lease.