164 N.E. 545 (N.Y. 1928), New York Court of Appeals

Background of the case
In 1902, Salmon obtained a twenty year lease on a building owned by a third party, agreeing to change the building from a hotel to shops and offices. In order to finance this venture, Salmon entered into a joint venture with Meinhard by which Meinhard would provide the investment capital, Salmon would manage the business, and the two of them would divide up the profits.

Twenty years later, when the lease was about to run out and the joint venture therefore to dissolve, the property owner approached Salmon (the only one of the parties that had ever dealt with the owner) and offered him an opportunity to lease a much larger swath of property, including the current building, for a much bigger redevelopment project. Salmon agreed and entered into a new lease between himself and the property owner, without informing or involving Meinhard.

When Meinhard learned of this deal, he sued to be let into the deal on the grounds that the opportunity to renew the lease belonged to the joint venture. A referee agreed, and awarded Meinhard a 25% interest (based on Meinhard's half interest in half the property); the Appellate Division ratcheted it up to 50%; and Salmon appealed from that decision.

The court's decision
The court affirmed the decision in an opinion by famed jurist Benjamin Cardozo. It held that Salmon, as the managing partner, owed Meinhard, as the investing partner, a fiduciary duty, and that this included a duty to inform Meinhard of the new leasing opportunity. Joint venturers owe each other the highest duty of loyalty – "Not honesty alone, but the punctilio of an honor the most sensitive" – and Salmon, as managing partner has assumed a responsibility by which Meinhard must rely on him to manage the partnership.

The court further held that Salmon was an agent for the joint venture, and when Salmon agreed to the new business opportunity—which was made available to Salmon only because he held that position with relation to the joint venture—Salmon carried the joint venture into the new lease with him.

This decision extended the duties of partnership far beyond duties under a contract. It determined that in such a relationship, loyalty must be undivided and unselfish, and that a breach of fiduciary duty can occur by something less than fraud or intentional bad faith.

Andrews' dissent
A three-judge dissent, written by Judge Andrews, contended that any duty following from the partnership ended at the end of the twenty year period; because the partnership was created to manage the building for the twenty year term, the dissent felt that deals involving events to occur after the expiration of that term were of no matter to the partnership.