The Case
Our Big Brother
Alan was the founder and 80 percent shareholder of a successful wholesale corporation. His two younger brothers Stan and Steve were each granted by Alan 10 percent of the company shares, on account of their years of hard work and dedication to the business. After decades of successful partnership, unfortunately, Alan suddenly passed on, and he left his assets and total net worth to his wife and children. Stan and Steve, now in charge of the company’s financials, reviewed the accounting and detected a withdrawal of one million eight hundred thousand dollars back in 2017. The 1.8-million-dollar withdrawal was recorded by the company’s accounting as a distribution of profits to all respective shareholders. The funds were used to purchase a residential property in a suburban area. Much to the two brothers’ surprise they were listed as two percent partners for that purchase, as opposed to their respective 10 percent share. Stan and Steve notified Alan’s wife and children of the obvious error and requested them to correct the paperwork. When Alan’s wife refused to comply, Stan and Steve reached out to our Bet Din. They claimed they each owned an additional eight percent of the property, as well as its present appreciated value according to their respective shares.
Are the brothers entitled to an additional eight percent? Are they each eligible to receive 10 percent of the profits generated from the value appreciated? How should the Bet Din rule and why?
Torah Law
According to the ruling of the Shulhan Aruch, one who is appointed to make a purchase on behalf of another may not later claim that he made the purchase for himself. Nevertheless, if evidence or testimony exists that the representative indeed deviated from his mission, the above ruling is not applicable. Hence, if an appointed messenger somehow lists the deed of a property solely in his name, the messenger is the rightful owner. Since the contract and deed serve as evidence that he purchased the property for himself, he is its rightful owner and is required to immediately reimburse the stolen funds or unauthorized borrowed money to his sender.
It is important to note that a representative who misappropriates funds to make a purchase is liable for the loss or damage of the funds. He is likewise solely responsible for the property purchased should it depreciate and he is required regardless to reimburse the sender for the full
amount he stole. On the other hand, should the property value appreciate the representative is the sole beneficiary, as he is only required to return the original amount he misappropriated.
Therefore, in the instance in which a partner clearly deviates from his role by altering the shares of a purchase to his favor, he is required to immediately reimburse his partners with the funds he misappropriated. Upon reimbursement, the other partners are no longer entitled to their respective shares of the profits, but rather only to the reduced shares fiendishly designated to them. As aforementioned, this ruling is only applicable when clear evidence or documentation exists that the representing partner acted in such an illegal manner. Otherwise, the partners divide the profits according to their respective shares. Usually, when purchasing merchandise with company funds evidence does not exist to support a change in the percentages of the shareholders. Hence, the partners are required to divide the profits of the purchase according to their original agreement.
According to the ruling of the Shulhan Aruch, a Bet Din will protect a widow or orphan in instances in which a claim is brought forth against them regarding a matter that is only known to the deceased. Since the deceased is not available to defend his position, a Bet Din will not exact payment from his heirs. Regarding our case at hand, it is very possible that money was owed to the older brother and to collect money due to him he reduced the shares of his two brothers.
Often a Bet Din will intervene and rule beyond the letter of the law for the sake of peace between family members. In our case at hand, although by law the two younger brothers are not entitled to their claim, nevertheless, our Bet Din formulated a settlement enabling the family to maintain a peaceful working relationship. After all, the two brothers were now in control of the business, and the widow and her family need their continuous support.
VERDICT: Continuous Support
Although according to Torah law Stan and Steven were not even entitled to reimbursement for the money Alan took from the company as a distribution for their shares, nevertheless, for the sake of peace, our Bet Din formulated a settlement. As mentioned in Torah law, since Alan is not present to defend his position, a Bet Din is required to protect his widow and orphans and claims on their behalf. It is possible that Alan was owed money by his two brothers, and he chose to collect the debt by reducing their shares when purchasing the 1.8-million-dollar property in 2017. This possibility is far from remote, as three brothers who are partners for years regularly lend money to each other. Thus, by Torah law Alan’s wife is not required to make a payout. Nevertheless, since Stan and Steven were now managing the wholesale company and Alan’s wife needs their continuous support, with her consent, she reimbursed them for the money drawn from the company under their name. However, the profits generated from the purchase of the property were to remain at two percent each as listed.
YOU BE THE JUDGE
Turn of Events
Danny and Brenda were happily married for years. Danny operated a successful wholesale corporation throughout the early years of their marriage, and as a result the two enjoyed financial freedom and security. Unfortunately, tougher times arrived, and when the business suffered multiple setbacks, Danny equally divided the title of his private home to include Brenda as an owner. His intention was to somewhat protect the property from potential creditors seeking to collect payment in case of default. Two years later, Danny resorted to borrowing funds to sustain his company and signed personal liability notes to the lenders. The financial situation further deteriorated, and not only were the lenders seeking to collect their loans, but Danny and Brenda’s once happy marriage was on the verge of divorce. The two were no longer able to live peacefully together and mutually decided to terminate their marriage and they filed for a divorce. In Bet Din, the primary dispute was focused on their private home, which was listed in both of their names. Danny asserted that the property should first be sold to satisfy the outstanding debts that they accumulated, and subsequently the balance should be split. After all, the debts accumulated can largely be attributed to the high lifestyle they tried to maintain. He explained that his business capital was depleted due to their extravagant spending, which indirectly caused the company’s downfall. Furthermore, he claimed that the property was originally only in his name, which clearly indicates that he is the real owner. Brenda defended that she was not a partner in Danny’s business, and is not responsible for his debts. She said that she was unwilling to forfeit her share of the property on account of Danny’s inability to earn a living.
How should the Bet Din rule and why?