In this, the next to last lesson regarding partners, we shall be discussing the authorized actions of the partners on behalf of the partnership.

If both Reuven and Shimon are continually present in the premises of the partnership. then each can see what actions the other is taking and each can consult with the other; thus both are fully responsible for the partnership actions and they share equally in the losses and in the profits. If Reuven acts without consulting Shimon when Shimon was available to be asked, if Reuven's actions results in profits to the partnership, then they share equally in the profits; if Reuven's actions results in a loss to the partnership, then Reuven bears the entire loss.

What is usually the case is where Reuven is the only one present at the premises conducting the partnership business, although Shimon may also be conducting partnership business at another location. Then Reuven may only do those acts that the partners have agreed upon. For example, the partnership was set up for the purchase of governmental bonds. If there is cash on hand Reuven should not without consulting Shimon and getting his consent, purchase diamonds. Should Reuven deviate from the agreement then he solely bears any loss resulting from such act, and if there is a profit resulting from his unauthorized acts, both Reuven and Shimon share equally in the profits. Absent agreement covering authorized conduct, the halachah holds that partners should follow the custom of business in that locality as to the type of acts that a partner may do in the absence of the other partner.

We had a case before our Beth Din two year ago when the partners came to us, good friends, with a partnership agreement in place. They wanted to know what the halachah holds in regard to what each partner may do on behalf of the partnership without receiving specific consent from the other partner. (The partnership agreement could of necessity not cover every single contingency.) Their situation was such that one of the partners frequently flew to far away foreign countries. With the time differences, and especially if Shabbat had started in Japan or Hong Kong, while it was still Friday here, what could the local partner do without receiving consent of the partner who was not available until what was some 30 hours later, when Shabbat would end here in Israel. In other words, what may a partner do on behalf of the partnership without being held liable if what he does goes wrong and there is a loss?

The partnership may consist of any number of partners and that which is said regarding the two partners, Reuven and Shimon, will also apply to many partners.

The partner who acts on behalf of the partnership can be considered an agent of the other partner. It is assumed that an agent will do things that are beneficial for his principal. If an agent does something without the consent of the principal and it is to the detriment of the principal, the agent bears the loss, not the principal. Similarly in a partnership, if Reuven acts without the authority of Shimon and without authority of a partnership agreement, he is responsible for any losses that result there from. If there is a profit, it is shared equally. If Reuven acts (i) prudently in the manner of merchants, and (ii) not in contravention of any agreement between the partners, and (iii) is not negligent in his actions, and (iv) acts with the partnership assets as he would with his own assets, and a loss to the partnership results, both Reuven and Shimon bear the losses equally.

If the custom in the community is mostly to sell on credit, and if Reuven deems it necessary to extend credit in a situation where a prudent merchant would extend credit, he is not responsible for any loss to the partnership because of such extension of credit. However, if the custom of the community is mostly not to extend credit, then if Reuven extends credit without the consent of Shimon and it results in a loss, Reuven bears the loss by himself. If the result is a profit to the partnership, then both share equally in the profit. Even in a community where the custom is to sell on credit, if Shimon warns Reuven not to extend credit to customers and Reuven extends credit to customers, Reuven must bear any loss resulting from such credit extension, but both will share in the profits resulting from such credit extension.

Assume that Reuven does an unauthorized act that results in a loss to the partnership. If, after Shimon discovers the loss caused by Reuven's unauthorized conduct, he states that he condones such conduct, it is deemed a waiver of his right to ask Reuven for damages. Silence on Shimon's part after the fact will not be deemed a waiver of Shimon's rights.

However, if Reuven advises Shimon that Reuven will engage in unauthorized conduct and Shimon is silent, such silence will be deemed a waiver.

If merchandise is robbed and held by robbers who demand a payment for the return of the merchandise, it is the partnership that must pay such ransom, although the merchandise was in the possession of Reuven when it was robbed. This is true only if the goods are robbed without any negligence on the part of Reuven. However, if it is Reuven's negligence that facilitates the robbery, then Reuven pays the entire ransom price.
Reuven and Shimon as partners are creditors of a debtor. Reuven authorizes Shimon to settle his one-half share of the debt when he settles his own share of the debt. Shimon forgives the debtor the entire debt. Shimon must pay to Reuven one-half the value of the entire debt on the date of forgiveness.

Reuven is assigned to operate the home office of the partnership and Shimon is on the road doing partnership business. Reuven cannot communicate with Shimon and there is a need for another partner to do the work in the home office. Reuven can enter into an agreement with Dan that he will also be a partner in the partnership. Unless Reuven and Dan agree otherwise, Dan will receive a full share of the partnership. If there are only Reuven, Shimon, and Dan, Dan will receive a one-third interest in the partnership. Similarly, if Reuven deems it necessary to take action on any matter on behalf of the partnership in Shimon's absence, he may take such action. The better practice would be for Reuven to make an application to Beth Din for permission to take such action. Shimon may similarly take such actions on behalf of the partnership that he reasonably deems will be beneficial to the partnership. However, if Shimon is available to be contacted, Reuven must obtain the consent of Shimon before Dan can become a partner or before any other unusual action is taken.

Reuven, without consulting Shimon, takes some partnership funds from the Reuven-Shimon Company and enters into a partnership or joint venture with Levi. Thereafter, Shimon wishes to deal with Levi regarding the investment made by Reuven on behalf of the Reuven- Shimon Company; Levi must deal with Shimon. Levi cannot claim that he has no privity or connection with Shimon.

Reuven holds a note of indebtedness belonging to the partnership. Reuven wishes to move to another community and to take the note with him. His partner Shimon may prevent such action. Reuven may leave the note with Shimon or deposit it in a bank for safekeeping.

These were but a few of the types of questions that have come before our Beth Din regarding partnerships.

IYH in the next lesson we shall conclude the topic of partners.

The subject matter of this lesson is more fully discussed in Volume VI Chapter 176 of "A Restatement of Rabbinic Civil Law" byE. Quint, published by Jason Aronson, Inc. and on sale at local Judaica bookstores. Questions to quint@inter.net.il

[The Eikev Homepage]
[The TORAH tidbits Homepage] [How to use TORAH tidbits]
[About The OU/NCSY Israel Center] [About TORAH tidbits]