P'ninat Mishpat: Undoing a Problematic Partnership – part III | Beit Din Eretz Hemda - Gazit | Beit Midrash

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Case: The plaintiff (=pl) and the defendant (=def) started a new business together and signed a partnership agreement. When the prospects for success waned, def arranged for pl to buy out def’s brother-in-law’s (=bil) 40% of an existing business with def for 365,000 NIS. Pl and def added handwritten modifications to their agreement. Pl started paying in installments, and pl and def went to an arbitrator (=arb) to determine at what point in the payments pl would receive rights in the business. Arb decided that pl would have all the rights of partnership from after he paid 300,000 NIS. Soon thereafter, pl complained to def that he lost access to the security cameras, and the next day he complained to def and arb that all of the cash in a safe (appr. 30,000 NIS), to which only pl and def had keys, was missing. Arb spoke to def and after discontent with his reaction, rendered a ruling that pl could take 26,000 NIS from the company’s account and hold it in a secure account until matters are sorted out. After unsuccessful attempts to improve trust, arb ruled that pl had a right to exit the partnership. Def claimed that arb was partial to pl, and the matter reached the courts, who appointed Eretz Hemdah to adjudicate. Pl demands back the money he invested (based on par. 6.7 of the contract); 21,000 NIS he spent in arranging the money to invest or 40% of the business’s profits from the time of his investment; and legal fees. Def counterclaims that pl failed in his responsibilities and therefore should lose rights in the partnership (based on par. 6.8).

Ruling: We have seen that def’s apparent theft of money from the safe activates pl’s ability to dissolve the partnership and get his money back.
Another reason to activate par. 6.7 – Def took money from the joint account and put it in his own account. We reject def’s claim that this was fine because he used that money for the company, because pl had no access to the account, which is illegitimate for a full partnership.
Claim for compensation for expenses of raising money: Beit din rejects pl’s claim because pl did not directly lose money on the partnership, as he is receiving the money invested back. Had it not been for their agreement, def would have had to return the money he improperly took and the partnership would continue. The agreement that calls for return of his investment does not provide for the return of money spent on joining the partnership, which is therefore unwarranted. The alternate claim of receiving 40% of the profits during the partnership is also rejected. The provision that pl decided on is to retroactively undo the partnership, and according to this, he does not deserve profits during his involvement.
Legal expenses: The contract states that whoever wins adjudication between them will be entitled to compensation for legal expenses, and this applies to pl. Regarding the amount, beit din requested of the two sides to detail legal expenditure. Since the two sides presented similar numbers (upward of 40,000 NIS), pl’s number is acceptable.