Responsibility for a Failed Joint Investment – part II | Various Rabbis | Beit Midrash

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Case:The plaintiff (=pl) wanted to invest in a vacation site and turned to the defendant (=def), who had a petting farm, to help him develop it. They agreed to be equal partners in profits, but pl was to make the initial investment, which def estimated at 40,000 shekels; def provided mainly expertise and worked to get it operating. There was an unsigned draft agreement, which stated that pl’s investment would be paid back from profits. Pl’s son added in: "even if there are no profits" i.e., def will still have to reimburse pl for his investment. Due to greater than expected expenses, pl ended up investing 80,000 shekels, and the site never started operation, as pl decided to stop investing so much above the estimate. Pl demands that def return a portion of the lost investment. Def claims that considering his very weak financial situation, it was clear to pl that def could not commit to pay money out of pocket. Def has complaints against pl for not seeing the project through, thereby causing def’s great investment of time and effort to go to waste.

Ruling: [Last time we saw the Ramah’s opinion, that when partners invest unequally and need to share losses, money is not extracted from the smaller investor’s personal resources.]
The Ramah’s ruling may not apply in several cases. The Shvut Yaakov (III:167) says that if one of the partners was apt to gain from the profits without having to invest money, he is obligated to pay for losses from his own resources. The Shut Pnei Yehoshua (CM 3) adds that if they both invested and then one partner added to the investment, the two are to share the losses from the additional money.
All of the above rules apply only when not contradicted by agreement. In this case, there was an unsigned draft agreement, which is not operative in the classical sense but can serve as an indication of what the sides agreed to orally at the outset of the partnership. We see from the poskim a practical approach to determining whether the partner who invested less must reimburse the one who invested more in case of losses.
The agreement in this case contains counter indications. On one hand, the two are to be equal partners in profits; on the other hand, pl is to be reimbursed from profits, and there is a disputed addition on being reimbursed even if there are not profits. It is beit din’s obligation to consider the case’s subjective background. According to the parties’ descriptions, it is not plausible that def would have obligated himself to pay pl out of pocket. During the course of the investments, when pl was making decisions on how much to invest, it was clear he viewed the investment decisions as his prerogative and thus his responsibility. It is pertinent that while def did not invest serious funds, he invested much "value," as he gave up other job opportunities.
Therefore, def does not have to reimburse pl for his losses. On the other hand, pl did not have to continue investing money beyond the original plan for the project. Def cannot blame him for the fact that the investment did not produce profit.