Lesson # 143 • PARTNERS (part 1)

With this lesson we embark on a new topic, a topic with which so many people have been involved in during their lives, a partnership. Many professionals and businessmen have conducted their practices and businesses as partnerships. The average consumer is also very often involved with partnerships, since the store where she shops may be owned by a partnership and if there are any claims against the seller it may be against a partnership. The medical practice where the person is treated may be owned by a partnership. A person's stockbroker may advise him to invest in a limited type partnership that invests in real estate. The possibilities are many.

How does halachah treat a partnership? This lesson and some of the following lessons shall try to explain how halachah relates to the partnership. Following the requests that I receive by email and in person from the readers of this column, I shall proceed slowly and simply in these lessons, without taking anything for granted.

The author of the Shulhan Aruch, Rabbi Yosef Karo (1488-1575) in Shulhan Aruch Hoshen haMishpat. begins the laws of partnership with chapter 176, and these laws continue there through chapter 181. We thus see that he devotes six chapters to this topic.

This lesson commences with a discussion of how a partnership is organized, that is, what binds Reuven and Shimon, the partners, to each other in the partnership so that neither partner may state that the partnership never existed or that he no longer wants to be in the partnership.

Some of the questions that we will be discussing are: If the parties have failed to stipulate their share in the profits and losses and they invested disproportionate amounts, how do they share the profits and losses? What if Shimon delays his investment and Reuven has commenced operations, does Shimon share in the profits? What fiduciary duty does each partner owe to the other or to the partnership? What actions may each partner take on behalf of the partnership, and what if there is a dispute as to actions to be taken? How is a partnership terminated and how are the assets divided? What is to be done with accounts receivable and accounts payable? How should the partners collect debts from third-party debtors; may one partner sue on behalf of all the partners? These are but a few of the topic to be covered by these lessons. Some of these questions can and should be answered by written agreements between the partners, preferably written by lawyers. (As an aside, I get lots of calls from people seeking legal advice and I usually tell them all that they should consult a lawyer. But the thing that they find most startling is when I say that each party should have his or her own lawyer. A lawyer should not represent both parties, although this absurd situation does sometimes exist in Israel.)

Some of the questions that I shall IYH deal with in these lessons are matters that occasionally come before our Beth Din.

As is seen in lessons 50, 51 and 52 (Torah Tidbits 432, 433, and 434) there are definite procedures to be followed to make a contract binding on the parties to the contract. There are similar procedures to bind the partners to each other. Otherwise. any partner could at any time leave the partnership.

The great codifiers and authorities describe three primary methods to bind partners to each other, and several subsidiary methods.

There is the view of Maimonides (Rabbi Moses b. Maimon. Rambam. Spain, Egypt, 1135-1204) that mere words, even accompanied by a kinyan, cannot bind persons to each other, whether in a contract or in a partnership. The words of Maimonides (herein loosely translated) appear in his Laws of Agents and Partners, chapter 4, law #1.

"When people desire to form a partnership, in what manner does each partner acquire title to the money of the other partner so that he also has an ownership in the money? If the partnership is one entailing the investment of money, each places his money into one purse and both lift the purse.

However, if they [merely] write a document and [even if] witnesses testify regarding it, and even if a kinyan was made whereby each bound himself to bring 100 [coins of the realm] and the other will bring 100 [coins of the realm] and that they will thereby become joint owners, they have not acquired [each the money of the other] and they are still not partners, because money cannot be acquired by a kinyan. If they enter into a partnership with chattels, then they can bind each other by each performing a kinyan; for example, one binds himself that he will bring to the partnership a barrel of wine and the other that he will bring to the partnership a jug of honey. Also if they mix their produce or if they jointly rent a place and one partner places his barrel of wine there and the other places his jug of honey there, they become partners in the business of selling wine and honey. If craftsmen enter into a partnership in their craft they are not partners even if each binds himself with a kinyan. Therefore, if two tailors or weavers agree that whatever each one makes will be owned by them as partners, they are not partners since a person cannot transfer title to things not yet in existence. However, if they purchase cloth with their funds and sew it into garments and sell the garments, or if they purchase thread with their funds and weave it into cloth and sell it, they are partners.

Even according to the view of Maimonides, once a partnership has been properly organized it continues without having to make a proper kinyan for each new transaction."

The term "kinyan" has been mentioned by Maimonides here and I have used the term in many of the lessons and I did from time to time define the term "kinyan". I was at a wedding a few weeks ago and was asked by the rabbi performing the wedding to be a witness to the kethubah. I asked the rabbi if the groom knew the contents of the kethubah since he was undertaking to be bound by its terms. The rabbi said it was late and mumbled something about shekiah and he didn't have the time to tell the groom. I respectfully declined to serve as a witness to say that the groom when, he made a kinyan, knew what he was doing. A few weeks after that I was asked to be a witness to the tena'im document at a wedding. The officiating rabbi was Rav Wollici and he did everything according to what was required. The respective fathers were told by him the contents of the tena'im document and they each performed a kinyan binding themselves to its terms.

In simple terms the term "kinyan" be defined as follows:

A kinyan is a method whereby an obligor or a person who undertakes to do something legally obligates himself. For example. A, a painter undertakes to paint the house of B the home owner, and B obligates to pay A $100 if he paints his house. In halachah these mutual promises are not binding. Thus even if A paints the house, B need not pay for it. (He may have to pay a smaller amount for benefit received) However, if a kinyan is made, then the promises are binding on the parties. The easiest and most common method of kinyan is the transference to the obligor (the person making the promise) of a handkerchief belonging to the obligee (the person to whom the promise is made), or belonging to some other person present, such as the lawyer or witness. Thus when A gives his handkerchief to Band B accepts it, B undertakes to pay to A $100 when A paints B's house. When B gives his handkerchief to A and A accepts it. A undertakes to paint B's house. Both are bound. "Kinyan" is also a method of acquiring things real estate of chattels, but that is not within the scope of this lesson.

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