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DOUBLE CROSSED?

By: Rabbi Max Sutton

Harry, a real estate developer, agreed to become partners with Steve, who would provide the financial backing for the building of a new shopping mall. The two decided that Harry’s corporation would offer their bid on the property for sale and, if their bid was accepted, Steve would arrange the payment. At first their bid was rejected but, months later, when the highest bidder was disqualified, Harry’s corporation ultimately purchased the property. Steve pressed charges against Harry in Bet Din claiming that he swindled the deal from him.

Harry, the winner of the auction, sold 50% of the shares to another investor for five million dollars upfront. Steve not only demanded that half of that sum be forwarded to him, he also claimed to be owed half the anticipated revenue once the shopping mall was complete.

Harry confirmed that he sold half the shares for five million dollars to an outside investor, but defended that Steve left out a very important detail in his story. Harry asserted that Steve phoned him to back out of the deal almost immediately after they offered their bid for the property. Harry said that the explanation Steve gave him for reneging was that another opportunity came up which would tie up most of his available credit line. Steve responded by denying that any such phone call took place and that Harry used him to secure the purchase and later dumped him. Is Steve entitled to the proceeds of the shares sold by Harry?

How should the Bet Din rule and why?

TORAH LAW

According to the ruling of the Shulhan Aruch, in order for two parties to formulate a partnership, various conditions must be met. A signed contract or the transfer of funds to a joint account are some of the ways a partnership is created. By law, a partnership formed through a mere verbal agreement is not binding. Nevertheless, when widely accepted in a specific industry, a verbal contract is considered legally binding. Even in such industries, however, if a defendant contests the existence of a verbal partnership, or if the defendant agrees that a verbal contract existed but argues regarding the terms agreed upon, he is entitled to swear under oath while supporting the validity of his defense and is exempt from payment. As a rule, unless evidence is provided by a claimant to support his position, a defendant has the upper hand in the legal proceedings.

By rule of the Shulhan Aruch, a partner who claims he unilaterally terminated an existing partnership is not believed. Hence, all profits generated from the business venture are to be shared by the partners as per their original agreement. To one-sidedly terminate a partnership is corrupt and illegal; therefore, the claim is dismissed as fictitious.

If, however, a defendant claims that he reached a settlement with his partner to terminate their affiliation, his claim is further investigated. Although his partner denies terminating the agreement, the defendant nevertheless has the upper hand since he possesses the funds in dispute.

According to all leading halachic authorities, property listed in one’s name is evidence of ownership. Unless the legal owner admits to a claimant that the property in dispute is not solely his, a Bet Din will submit a ruling that favors the listed property owner. Although in certain instances a defendant is required to take an oath to validate his defense, a Bet Din will only impose such an oath if there is an indication that it is necessary.

VERDICT Irresponsible Business Dealings

Our Bet Din awarded Harry all the proceeds that resulted from the sale of fifty percent of his shares. As mentioned in Torah law, since Steven did not have a signed contract stipulating the terms of his partnership with Harry, his legal claim was considerably weak.

Harry claimed that Steven voluntarily backed out of the deal due to a lack of available funds, and was prepared to testify under oath to validate his defense. Furthermore, the property purchased at the auction was listed solely in Harry’s name and, for all practical purposes, Harry could have completely denied any interaction with Steven. Without proof that a partnership existed at any point in time, Harry  was believed when he said that Steven voluntarily backed out of the deal. Although there was correspondence via email between the two, there was no concrete evidence to indicate that Steven was ever a partner.

Our Bet Din entertained the option of imposing on testimonial oath upon Steven, but ultimately, we absolved him of that stringency. The fact that Steven irresponsibly allowed Harry’s corporation to bid on the property without mention of the partnership served as an indication that he was unwilling to commit to the purchase from the very beginning. Hence, Harry’s claim that Steven voluntarily reneged due to the lack of funds was more believable. In fact, the Bet Din felt it was likely that Steven never had the funds to begin with and was never serious about the purchase. Harry was therefore absolved of taking an oath.