Beit Midrash

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A Disappointing Partnership – part I


Various Rabbis

Tamuz 14 5779
Based on ruling 70052 of the Eretz Hemdah-Gazit Rabbinical Courts

The plaintiff (=pl) was a consultant for the owner (=def3) of a company (=def2). They and two more partners decided to form a new LLC company (=def1), in America, providing the services def2 provides in Israel. The partners divided responsibilities; pl was responsible for financial planning. The principals first all worked from Israel, hiring workers for their Manhattan office. Because business was slower than expected, pl was sent with pay to run the company on site. Sales improved, but def1 remained unprofitable. Disagreements over how to proceed grew, and the other partners agreed to buy out pl’s share in def1 for $68,000. A few months later, they made def1’s operations off limits to pl; now, def1 is being closed. Pl demands to receive the $68,000 plus expenses, arguing that he worked harder than he should have (the others, especially def3, did not do their fair share) and almost succeeded in saving def1. The defendants respond that pl exaggerated his qualifications and was not capable of doing the job properly, did not work with the necessary diligence, and did not meet the earning targets. The internet site was unprofessional; he did not do the proper bookkeeping; he did not report records to the IRS, which caused a $7,000 fine. He also damaged relationships with some clients of def2. The partners excluded pl from def1 when pl threatened to join a competitor of def2. The $68,000 offer was never signed and was contingent on a signed agreement with a non-competition clause, which pl refused to sign. They also learned later about further damages done by pl. The defendants demand the return of $304,140 of salary and expenses.

Ruling: A clear oral agreement is considered binding in society, and so there might be grounds for the buyout offer to serve as a kinyan based on situmta (a kinyan based on common practice) despite the lack of contract. The Radbaz (I,380) says that situmta works even orally. On the other hand, the Rosh (Shut 12:3) rules that situmta can create a new act of kinyan but cannot work without a physical action that can be considered a kinyan. In any case, pl has not demonstrated that there was a full oral agreement. The matter of non-competition was never sufficiently decided. Also, communications indicate that both sides viewed that the agreement would not be complete until signing. Therefore, pl is not entitled to the $68,000.

Is pl responsible for the failures? In general, a worker is obligated for damages caused by his lack of sufficient action (see Bava Kama 99b). However, he is not liable for understandable mistakes. Three factors impact whether a worker is legally culpable: Whether he: 1) did not do what he was instructed (ibid. 101a). 2) did things in a way that society considers unreasonable (Rama, Choshen Mishpat 306:8). 3) was unqualified for the job. In this case, while there are some reasonable complaints about pl’s work, most of them are unproved. The other partners also share responsibility for their own failings in def1 and for not correcting pl’s mistakes, to the extent that they existed. Def3 had worked with pl and knew his capabilities. Therefore, the countersuit is primarily rejected.
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