Alan was the founder and 80% shareholder of a successful wholesale corporation. His two younger brothers Stan and Steve were each granted by Alan 10% of the company shares, on account of their years of hard work and dedication to the business. After decades of successful partnership, unfortunately, Alan suddenly passed on. He had left his assets and total net worth to his wife and children. Stan and Steve, now in charge of the company’s finances, reviewed the accounting and detected a withdrawal of one million eight hundred thousand dollars back in 2017. The 1.8-million-dollar withdrawal was recorded by the company’s accounting as a distribution of profits to all respective shareholders. The funds were used to purchase a residential property in a suburban area. Much to the two brothers’ surprise they were listed as 2% partners each for that purchase, as opposed to their respective
0% share. Stan and Steve notified Alan’s wife and children of the obvious error and requested of them to correct the paperwork. When Alan’s wife refused to comply, Stan and Steve reached out to our Bet Din. They claimed they each owned an additional
8% of the property, as well as its present appreciated value according to their respective shares.
Are the brothers entitled to an additional 8%? Are they each eligible to 10% of the profits generated from the appreciated value?
How should the Bet Din rule and why?
According to the ruling of the Shulhan Aruch one who is appointed to officiate a purchase on behalf of another may not later claim that he made the purchase for himself. Nevertheless, if evidence or testimony exists that the representative indeed deviated from his mission, the above ruling is not applicable. Hence, if an appointed messenger somehow lists the deed of a property solely in his name, the messenger is the rightful owner. Since the contract and deed serve as evidence that he purchased the property for himself, he is its rightful owner, and is required to immediately reimburse the stolen funds or unauthorized borrowed money to his sender.
It is important to note that a representative who misappropriates funds to make a purchase is liable for the loss or damage of the funds. He is likewise solely responsible for the property purchased should it depreciate, and is required, regardless, to reimburse the sender for the full amount he stole. On the other hand, should the property value appreciate, the representative is the sole beneficiary, as he is only required to return the original amount he misappropriated.
Therefore, in the instance in which a partner clearly deviates from his role by altering the shares of a purchase to his favor, he is required to immediately reimburse his partners with the funds he misappropriated. Upon reimbursement, the other partners are no longer entitled to their respective shares of the profits, but rather are only entitled to the reduced shares fiendishly designated to them. As aforementioned, this ruling is only applicable when clear evidence or documentation exists that the representing partner acted in such an illegal manner. Otherwise, the partners divide the profits according to their respective shares. Usually, when purchasing merchandise with company funds, evidence does not exist to support a change in the percentages of the shareholders. Hence, the partners are required to divide the profits of the purchase according to their original agreement.
According to the ruling of the Shulhan Aruch, a Bet Din will protect a widow or orphan in instances in which a claim is brought forth against them regarding a matter that is only known to the deceased. Since the deceased is not available to defend his position, a Bet Din will not exact payment from his heirs. With regard to our case at hand, it is very possible that money was owed to the older brother, and in order to collect money due to him he reduced the shares of his two brothers.
Often a Bet Din will intervene and rule beyond the letter of the law for the sake of peace between family members. In our case at hand, although by law the two younger brothers are not entitled to their claim as aforementioned, nevertheless, our Bet Din formulated a settlement enabling the family to maintain a peaceful working relationship. After all, the two brothers were now in control of the business, and the widow and her family are in need of their continuous support.
Although according to Torah law Stan and Steven were not even entitled to reimbursement for the money Alan took from the company
as a distribution for their shares, nevertheless, for the sake of peace, our Bet Din formulated a settlement. As mentioned in Torah law, since Alan is not present to defend his position, a Bet Din is required to protect his widow and orphans and claim on their behalf. It is possible that Alan was owed money by his two brothers and he chose to collect the debt by reducing their shares when purchasing the
1.8-million-dollar property in 2017. This possibility is far from remote, as three brothers who are partners for years regularly lend money to each other. Thus, by Torah law Alan’s wife is not required to make a payout. Nevertheless, since Stan and Steven were now managing the wholesale company and Alan’s wife is in need of their continuous support, with her consent, she reimbursed them for the money drawn from the company under their name. However, the profits generated from the purchase of the property were to remain at 2% each as listed.