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Beit Midrash Family and Society Basics of Financial Laws

The Status of a Limited Company

The prosecutor claims that the husband died before being able to pay him for his brokerage services, and he is suing the defendants for brokerage expenses. The defendants are uncertain as to whether he defrayed or not, and hence are unwilling to pay.
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Edited by Rabbi Yoav Sternberg

Case Description
The defendants are the late husband's widow and his heirs. During his lifetime, the husband approached the prosecutor and requested brokerage services for the purchase of land. When an appropriate plot was found, the husband established a limited company whose stocks would be divided between himself and his wife, and the land was bought by the company. The husband died shortly thereafter. The company presently belongs to the widow and the heirs.

Prosecutor's Claim
The prosecutor claims that the husband died before being able to pay him for his brokerage services; therefore, he is presently suing the defendants for brokerage expenses.

Defendants' Response
The defendants claim that they do not know if the deceased defrayed brokerage expenses or not, and they are not ready to pay for something that they are uncertain about.

Decision
It is the company which should be seen as defendant, not the widow and heirs. Therefore, because there is no record of payment in the company's books, the company itself is responsible for liquidating the debt.

Ratio Decidendi
Company records contain no indication that either the company or the husband payed the broker. The defendant's lawyer likewise admits that he knows nothing about such a payment. The court's conclusion is that while there is no patent evidence of defrayal during the husbands lifetime, it is most plausible that he payed.

In the eyes of the court, the most important issue is determining the true defendants. Shulchan Aruch rules (Choshen Mishpat 108:1) that a person is only permitted to collect a father's debt from his heirs if it is indubitably clear that the father did not pay off the debt himself. Rema (ibid. 69:5) notes that in a case where it is plausible that the father paid, the custom in recent generations is to adjure the heirs.

Therefore, if it turns out that the heirs are the defendants, they are essentially exempt of payment, and the accepted practice is for them to take an oath. They customarily redeem this oath on a sum one third the value of the claim. However, if the company is the defendant, it is only exempt if it offers an unequivocal argument, which is not the case here.

Rabbi Dichovski is of the opinion that a company has the status of an independent legal entity, and he bases his position upon the legal responsum of R' Shmuel di Modena, the "Maharashdam" (Choshen Mishpat 380):

"It is clear beyond all doubt that a monetary claim must be based upon one of two things for it to be valid: either (a) upon the clear guidelines set down by our holy Torah or by our sages (of blessed memory), as legislated in the Talmud, or (b) upon a condition which one party makes with another. This is why the modes of acquisition employed by merchants are effective even though they are not written in the Torah and are not based upon Jewish law . . .

"So we see that custom overrides Jewish law in all such matters, for with regard to all monetary issues people buy and sell according to custom. Therefore, any practice employed by shopkeepers to purchase goods is valid . . .

"And so, based upon this, if it is true that the shopkeepers in the city of Ancona were accustomed to buying each others' debts in the manner we mentioned above, even though they did not notify the debtor, he [the debtor] would be bound by the law of the city to pay off his debt to the purchaser. And even though according to the law of our Torah such a negotiation is bereft of substance, the sale is valid, for the shopkeepers are accustomed to buying in this manner."

The principle which the Maharashdam lays down here is that "handshake acquisition" implies adopting the accepted modes of acquisition, even though they are not valid according to Jewish law. R' Dichovski is of the opinion that we should likewise adopt in the field of civil law any principle upon which the practical methods of commerce are based. Something to this effect also appears in Responsa Divrei Chaim (Choshen Mishpat 26):

"What is the reason that regarding an act which is not a mode of acquisition at all, neither biblical nor rabbinical, we say that 'the custom of the shopkeepers overrides the law'? . . . and [if so] why not say, regarding [the concept of] selling something which has not yet come into existence or has not yet come into the seller's possession: 'if this is the custom, let the custom override the law'?

"Actually, we can say that the reason that regarding something which has already come into existence the customs of the shopkeepers are effective is because the seller 'makes up his mind and transfers the object,' but when it comes to something which has not yet come into existence, there is no object for him to transfer, for it does not exist.

"Yet, in truth, even regarding partners, many authorities are of the opinion that a person can 'make up his mind and transfer the object' even if it has not yet come into existence. And even those who disagree in the case of partners do so on the grounds that in such a case a person does not 'make up his mind and transfer the object,' but if this is the explicit custom, everybody [would agree] that a person can 'makes up his mind and transfer the object.' "

It follows that since the prevalent custom is to see a company as an independent legal entity, so should it be considered according to Jewish law.

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