Aftermath of a Complex Partnership – part II

Case: The sides worked together in marketing other companies’ technological products. The defendant (=def1) is the owner of a company (=def2). The plaintiff (=pl1) worked for def2, but took on an increasingly central role, with agreements in 2010 and 2014. In the 2010 agreement, pl1 was appointed vice-chairman of def2 (and was envisioned to run it) and received stock options in it. Among the elements of the 2014 agreement is that that pl1 and def1 should share profits in def2. At different times, pl1 has claimed that his share in 2015 profits is either 75,000 NIS or 120,000 NIS. Def1 claims that these numbers must be drastically reduced due to expenses and debts.

Ruling: Par. 5f of the 2014 contract states that pl1 and def1 will split the "gross profits (operational profits) … after the completion of obligation to banks." There are two disagreements between the sides on the matter. While both agree that gross profits refers to what is left after expenses, pl1 claims it refers to out of pocket expenses, which does not include salaries, whereas def1 says that salaries must also be subtracted from the profits. Additionally, pl1 argues that "obligations to the banks" means after receiving payments from clients and paying the debts to suppliers. Def1 says it means that there must be surplus money in the bank account. Def1 also claims that the reports filed with the tax authorities (ma’azan bochan) should be used for calculations, and they show a profit of only 9,000 NIS for 2015. Pl1 argues that this is not valid because this includes over 100,000 NIS of company money that def1 drew for household expenses (this is legal in a private company).

Beit din’s understanding is that the profit referred to is after all expenses, including salary. If the profits are divided equally between the parties before considering salaries, from where will the salaries be paid?! Pl1’s explanation of "obligations to the bank" has no specific connection to banks. Def1’s explanation is logical, as it makes sense to make sure that there are no debts, from the past or the present, before handing out profits. Even if we consider these phrases in the contract as unclear, pl1 will not be able to receive the profits he is seeking, because the rule is that the one who wants to use a document to extract money needs to prove that the payment is subscribed to in the contract (Shulchan Aruch, Choshen Mishpat 42:5).

Def1 was able to prove that 2015 ended with def2 in debt of 130,000 NIS. We need to add to that due to our decision (see last week) that def2 owes pl1 42,000 NIS for 2015 salary. On the other hand, pl1 owes def2 25,000 NIS. In total, def2 is in debt almost 150,000 NIS. Although it appears that def1 did use some 103,000 NIS on household expenses, that still leaves def2 in the red. Therefore, pl1 does not have a claim on profit distribution for 2015.