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A PARTNER?

By: Rabbi Max Sutton



THE CASE

Sol, owner of a sportswear company, needed funds to further develop his business. Additionally, he was searching for a popular brand name to help market his product. He approached Jerry and offered to sell him 50% of the shares of his business in return for a cash investment, and the exclusive rights to use Jerry's privately-owned brand name for his sportswear products. Jerry and Sol agreed, and the venture was underway. However, some three years later, Sol was unable to turn his company around, and although there were no substantial losses, no profitable income was generated. Sol then opened, with Jerry's consent, a shoe division in Jerry's accessory company, selling ladies shoes with the same name brand. The division was a huge success, and after only its first season it was evident that the company was on course to net substantially. Sol requested of Jerry to advance him payment against his share of the profits as an equal partner. Jerry refused, claiming that Sol was not a partner in the shoe division. Jerry explained that as opposed to the sportswear company, which was owned and operated by Sol, the shoe division was not. The finances, overseas contacts, design team, and warehousing were all his sole responsibility. According to Jerry, Sol was acting merely as a commission salesman for the division, with a base salary. Sol counter-claimed that before he founded and launched the shoe division, he verbally confirmed with Jerry his role as a 50% partner. Jerry responded that he does not recall having such a conversation. Sol added that he invested time and energy like an owner, and he is unwilling to accept terms which do not compensate him accordingly.

Is Sol a partner in the shoe division or only a commission salesman? How should the Bet Din rule and why?

TORAH LAW

According to the ruling of the Shulhan Aruch a defendant who denies a monetary claim is required to take an oath before he is acquitted. Since the plaintiff has no evidence or valid testimony to support his claim, a defendant is exempt from payment once he swears before a Bet Din that the claim is false. In instances in which a defendant contests the claim in its entirety, the oath he is required to take is of rabbinic origin. The above ruling is applicable to all sorts of financial claims, including claims of litigants disputing a partnership.

Notwithstanding, a Bet Din will consider other variables before imposing a swear on a defendant. If the claim of the plaintiff is
far-fetched or unreasonable a Bet Din will dismiss the case without further ado. Generally, it is unreasonable to be awarded a fifty percent partnership without any liability in case of loss, or without an arrangement to pay back office fees for overhead expenses. Unless one possesses a unique talent or expertise which justifies such favorable terms, a defendant is not subject to take an oath for such a claim. In our case at hand, a standard salesman who previously operated a failing business cannot impose an oath on a defendant in such instances.

By rule of the Shulhan Aruch in instances in which a dispute exists regarding the wages agreed upon by an employer to his employee, or in the absence of a previous agreement, the employee is entitled to the customary pay received in the market for the service provided. The obvious reasoning for this ruling is that an employer is required to compensate his employee for the benefit he received from his labor. The accepted market price is what is fair and serves as adequate compensation.

At times, a Bet Din will refer litigants to an experienced third party to finalize the details of an agreement. A Bet Din will first instruct the third party regarding the verdict on the matter, and will request a business structure that meets its terms. Once a detailed operating agreement is formulated the Bet Din will review and approve if appropriate.

VERDICT A Deal

Our Bet Din ruled in favor of Jerry, denying Sol a blanket 50% of the shares of the shoe company. Although Sol is claiming that Jerry verbally agreed to such terms, without signed documentation, Jerry is not required to transfer shares which are presently in his legal possession. Furthermore, Jerry is not required by law to take an oath that Sol's claim is false, since it is difficult to impose an oath due to the remote nature of Sol's claims. Nevertheless, by law, Sol is entitled to compensation exceeding the amount Jerry is offering to pay. As head of the division, and facilitator of nearly all daily operations, Sol is not a standard commission salesman, and is entitled to be compensated for his services. To structure a detailed operating agreement for Sol and Jerry, our Bet Din referred them to an experienced third party who regularly formulates such agreements for the many divisions of his own company. After providing clear instructions to the third party as per this verdict, our Bet Din reviewed and ultimately approved the suggested agreement. The basic outline of the deal requires the shoe division to pay a percentage of its gross sales to Jerry's accessory company, before Sol can share in the profits. This formula was applied retroactively, and hopefully will enable Jerry and Sol to maintain their partnership.