Shabbat Parashat Toldot 5784

P'ninat Mishpat: Compensation for Transfer of Business to One Partner – part V

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,” but pl never received profits. After three years, acrimony brought them to separate, and beit din oversaw the transfer of the business to pl, with compensation due to def. [We have dealt already with the nature of the partnership and the valuation of the center. Now we will discuss pl’s claim that she is owed money from half of the profits until dissolution.]

Ruling: The sides disagree on what “the point of balance” (nekudat ha’izun), after which pl gets half of the profits, means. Pl says that it refers to net profit for each year, which existed some years. Def says that it is when the cumulative net profit exceeds investment in the business, which, he claims, was not reached.

In financial literature, the term is used like pl argues, thus supporting her demand for shared profits withheld. However, there are several reasons not to award her such profits.

According to two dayanim, neither side, who drafted the agreement, were experts in economic terminology, and the agreement’s language and logic indicate that pl could not enjoy profits while def was out significant money. Apparent intention is more important than an agreement’s words (see Shulchan Aruch, Choshen Mishpat 331:1-2). However, according to dayan 3, since def owned the physical property and was credited for it (see part III), he cannot use their purchase as an expense to lowers profits. According to him, the profits were 14,051 NIS, half of which pl deserves. According to dayan 2, def paid for the center’s physical property, does not own them, and deserves reimbursement for them before pl can start receiving profits.

According to dayan 1, pl does not deserve payment on profits because of her contradictory claims regarding the center’s profitability. When discussing profits, pl claimed that def hid profits, which were very high. (She demanded that beit din obtain def’s personal banking information, through which the center’s finances were first handled, and then the information of def’s whole company (for both centers), for later years. Beit din rejected that request because it would affect def’s privacy, would require enormous time and resources to be impactful, and, in the absence of strong claims of fraud, was unlikely to prove anything conclusive. Since pl agreed for years for the finances to be handled as they were, she cannot now complain about it.) Yet, in discussing the center’s value, regarding compensating def for giving it up, pl claimed that the center always showed net losses. If pl essentially admitted the center did not make profits, she cannot simultaneously demand profits.

Therefore, according to two dayanim, pl’s demand of back profits are to be rejected.

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