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P'ninat Mishpat: Compensation for Transfer of Business to One Partner – part III
(based on ruling 78039 of the Eretz Hemdah-Gazit Rabbinical Courts)

P'ninat Mishpat (802)

Beit Din Eretz Hemda - Gazit

727 - Unpaid Worker’s Compensation

728 - P'ninat Mishpat: Compensation for Transfer of Business to One Partner

729 - Problems Arising from the Sale of Stores in New Project

Case: The plaintiff (=pl) and the defendant (=def) opened a center that provides therapy for children. According to their agreement, def, who has a similar center elsewhere, was responsible for the finances and infrastructure. Pl was to serve as a therapist, be in charge of day-to-day operations, interact with parents and workers, and plan events. The business and grounds’ rental were in def’s name. Pl and def were supposed to get small salaries and then split profits equally after reaching "the point of balance." After three years, the level of acrimony caused them to separate, and beit din oversaw the transfer of the business to pl, with compensation due to def. [In the last installment, Beit Din determined that the sides were partners. This time we deal with the extent of the partnership.]

Ruling: The Dayanim disagreed concerning the extent of the partnership.

When there are insufficient indications otherwise, we assume a partnership is equal, as the Shulchan Aruch (Choshen Mishpat 176:5) rules that even if partners give different amounts to the business’ "joint pot," they share profits equally. According to Dayan 1, this is strengthened by the fact that the agreement states that the two will share the profits equally after the "point of balance" is reached.

Here, there is reason to say that an equal split of everything is illogical, because if the partnership dissolves after a short amount of time, the initial investment, which def provided alone, would have been lost.

According to Dayan 1, the sides did not anticipate such a break up, certainly not quickly, and pl would have had to compensate def in that case. Since after five years, the original investment was mainly returned (see later installments) and since over that time, pl’s being underpaid meant she had also invested, there is no problem to say the ownership of the center (not the overall business, which included a center owned by def) was equally owned.

Dayan 2 distinguished between three elements of the value of a business: profits, physical property, and monitin (intangible elements, e.g., reputation, customer base, professional connections). Regarding profits, all agree that they were supposed to be divided equally, i.e., full partnership. Regarding monitin, we can also assume that it was shared, as both sides contributed toward it. Regarding physical property, which def bought, that can be presumed to be owned by def alone, which explains why investments in these matters were not recorded as an "owner’s loan" to the business. This is in line with the halacha that when the sides to a partnership contribute different amounts if the funds are still intact, they are returned to the contributing partner (Shulchan Aruch, CM 176:5). (According to Dayan 1, that refers to a case in which the partnership’s main operation is using the funds for buying and selling.)

Dayan 3 agrees with Dayan 2 that there were no equal rights in the center. He differs in saying that this did not find expression in def owning the physical property, but rather that pl must pay def for his agreement to transfer the property to pl.

Next time we continue with other elements of the ruling.

P'ninat Mishpat