The Case

On the Sneak

Bobby, Jacob, and Al were equal partners in a residential property that they purchased and renovated. Each of the three managed a different role in the partnership, which included construction work, decorating, and financing. The first serious buyer offered 2.4 million dollars for the property, enabling a distribution of 800 thousand dollars to each owner. Al rejected the offer and told the buyer that he was unwilling to sell for less than 2.7 million. However, the buyer discovered that Bobby and Jacob were ready to close at 2.4 million. Realizing that Al was the one holding back the sale, the buyer approached Al and secretly offered him 100 thousand dollars cash if he goes to contract for 2.4 million. Al agreed after making a simple calculation that the 100 thousand would bring his total to 900 thousand, the amount he was holding out for. As planned, the property sold for 2.4 million dollars, which was divided by the three partners, and Alan secretly received an additional 100 thousand dollars in cash from the buyer. Eventually, Bobby and Jacob became aware of the additional payment when reading an email sent by the buyer alluding to transfer of the cash. In Bet Din Bobby and Jacob originally requested to reverse the entire sale but afterwards claimed monetary compensation for their loss. Al defended that they readily all agreed to sell for 2.4 million, and the extra 100 thousand he received was independent of the selling price. Are Bobby and Jacob entitled to compensation?How should the Bet Din rule and why?

Torah Law

According to the ruling of the Shulhan Aruch, one who collects payment for a property he jointly owns with others, is viewed as a representative acting on behalf of his partners. Hence, it stands to reason that if one for whatever reason collects extra funds for a jointly owned property, he is required to split the additional proceeds with his partners.

Additionally, according to the ruling of the Shulhan Aruch, it is illegal to withhold proceeds collected from another’s principal loss. This ruling is deduced from a classic case recorded by our sages of the Mishna. By rule of the Mishna, a borrower of a cow is liable to pay its owner in case of death caused by accidental mishap.  The borrower is required to pay the owner directly even if he did not borrow the cow from the owner, but rather from a third party who was temporarily renting the cow. Although a renter is not liable for the cow’s death in the event of an accidental mishap, he may not plead exemption to the cow’s owner in order to collect from the borrower. Although the renter extended to the borrower his usage rights of the cow, the renter is not the cow’s owner and is not entitled to collect payment for its loss. The borrower is instructed by law to pay the cow’s owner directly since the owner is the party that sustained a loss of his principal.

Therefore, in the instance in which a joint property is sold, all the proceeds paid for the property are viewed as compensation for its principal value. Hence, one of the partners is not entitled to withhold any of the funds paid for the property and is required to distribute the proceeds equally.

Obviously, when substantial sums of money are transferred from one party to the next, a logical explanation for such generosity is in order. Additionally, even in the event of the transfer of much smaller sums, nevertheless, when the recipient conceals such a transfer from his partners it is an indication of fraudulent activity. People have tendencies to justify unacceptable behavior when a financial gain is concerned. One who conceals information from his partners knowing that if the information is revealed it would clearly raise an objection is dishonest.

It is beyond the shadow of a doubt that when a buyer secretly pays an additional $100,000 to one of the owners of a joint owned property for its purchase, the payment is for the property’s inherent value. Thus, the funds are to be distributed between the partners. As mentioned, even if the sum collected is minimal, a partner is viewed as a representative of the group of owners and the money is to be distributed equally.

VERDICT:  An Order for Distribution

Our Bet Din ordered Al to distribute the $100,000 he received equally between his partners. As mentioned in Torah law, Al is viewed as a representative of Bobby and Jacob when he collected the additional payment from the buyer. As a general rule, one who collects payment for a property he owns jointly, is acting on behalf of the partnership. Unless specific terms in the partners operating agreement dictate otherwise, all monies received are to be distributed equally. Additionally, it is obvious that the extra $100,000 that was paid by the buyer was for the purchase of the property and was not given to Al as a generous gift. The money was paid because of the inherent value of the property. Thus, Al has no right to withhold the principal value of the property from his partners. Before Al paid $33,000 to both Bobby and Jacob, our Bet Din chastised him for his dishonest and unacceptable behavior.

In Loving Memory of Vera Bat Carol, A”H

YOU BE THE JUDGE

A Timely Collection?

Jack extended a loan of $10,000 to his brother-in-law Nathan nearly five years ago when Nathan was out of a job. Since then, Nathan’s financial status has well improved, though he never responded to Jack’s request to pay his outstanding debt. Nearly a year later at a family wedding, Nathan noticed that Jack was sporting a new wrist watch. Nathan inquired about purchasing Jack’s previous watch and Jack replied that he was interested in selling it for ten thousand dollars. The very next day he gave Jack ten thousand dollars cash for its purchase. Jack received the cash payment and informed Nathan that he was collecting the payment on account of the ten-thousand-dollar unpaid debt he was owed. Nathan was upset that he was shrewdly lured into such a predicament and pledged to bring an additional ten thousand dollars the following evening to pay back his debt. He told Jack that although he already purchased the watch, he agreed that it is to serve as collateral until he brings him the money owed. Jack responded that the watch is not for sale, and that he already collected the money owed. The two brothers-in-law brought their case to our Bet Din.

Is Jack required to accept another $10,000 and sell Nathan his watch? Can Jack refuse to sell him his watch after he received the cash from Nathan under false pretenses? How should the Bet Din rule and why?